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Ruling 92-4

Sales and Use Taxes Intangible Personal Property


A company operates a retail and wholesale business that is not open to members of the general public. It is open only to those persons who pay a membership fee to obtain a membership badge. The membership identification badge enables a member to gain access to the store and entitles the member to purchase merchandise. The membership fee is a fixed amount for a one-year period and is renewable each year for the same fixed amount. The membership fee is not credited to the member's account, nor is it applied toward the purchase price of any item of tangible personal property.


Whether the sale of memberships, as evidenced by membership badges, constitutes the nontaxable transfer of an intangible right or a sale of tangible personal property subject to sales and use taxes.


Dine Out Tonight, Inc. v. Department of Revenue Services, 210 Conn. 567, 556 A.2d 580 (1989) involved the sale of membership privileges that entitled the member, who received a membership card and a directory of restaurants participating in the dining plan, to receive a free meal when a meal of equal or greater value was purchased at a participating restaurant.

"A conclusion as to whether the sales tax is applicable to the ... membership fees requires a determination of the true object of the transaction between the club and its members. American Totalisator Co. v. Dubno, 210 Conn. 401, 406, 555 A.2d 414 (1989); Columbia Pictures Industries, Inc. v. Tax Commissioner, 176 Conn. 604, 609-10, 410 A.2d 457 (1979); United Aircraft Corporation v. Connelly, 145 Conn. 176, 184-85, 140 A.2d 486 (1958); United Aircraft Corporation v. O'Connor, 141 Conn. 530, 537-38, 107 A.2d 398 (1954); Culligan Water Conditioning v. State Board of Equalization, 17 Cal. 3d 86, 96, 500 P.2d 593, 130 Cal. Rptr. 321 (1976); Federated Department Stores, Inc. v. Lindley, 8 Ohio St. 3d 35, 37, 456 N.E.2d 1209 (1983); Accountant's Computer Services, Inc. v. Kosydar, 35 Ohio St. 2d 120, 131-32, 298 N.E.2d 519 (1973)... The determinant is the intention of the parties." Dine Out Tonight Club, supra, at 571-572.

The Court determined that the true object of the transaction between the club and its members was not "the prospect of obtaining a card and a directory, items that would be of little or no value without the concomitant right to receive free meals... [The sine qua non of the transaction between the club and its members is the intangible right to receive free meals and access to the knowledge of an expanding list of restaurants that provide them... The membership card and directory are merely indicia of that intangible right and incidental aids to its exercise." Dine Out Tonight Club, supra, at 572.


In the transaction between the company and its members involving the purchase of membership cards, the true object of the transaction is the purchase of intangible rights that enable a member to gain admittance to the company's store and to purchase tangible personal property in the company's store. The true object of the transaction is not the sale of tangible personal property in the form of a membership badge. The purchase of a membership card in and of itself is of no value without the concomitant rights to be admitted to the company's store and to make purchases of tangible personal property.


March 31, 1992