Rev. Rul. 62-46

Advice has been requested whether the excise tax on club dues applies to amounts paid to a social club by its members for the use of the facilities described below.

A club, which qualifies as a social club or organization (rather than an athletic or sporting club or organization) within the meaning of section 4241 of the Internal Revenue Code of 1954 and section 49.4241-1(e) of the Facilities and Services Excise Tax Regulations, maintains a health treatment department and offers health treatments to its members. The health treatment facilities include a hot room, steam room, electric cabinets, various kinds of baths, showers, hydrotherapy equipment, ultraviolet and infrared lamps, deep therapy equipment, and massage equipment. The equipment is operated by an attendant who accompanies the members through the course of treatment. A usual treatment includes a massage and the use of some or all of the available equipment. The members may pay a prescribed amount for each treatment, or they may pay a larger amount for a course of treatments extending over a period of several weeks.

No mandatory minimum charge is made against all members for the use of these facilities. Only the members who take the health treatments are required to make any payments for these facilities.

Section 4241(a)(1) of the Code imposes a tax on any amount paid as dues or membership fees to any social, athletic, or sporting club or organization, if the dues or fees of an active resident annual member are in excess of ten dollars per year.

Section 4242(a) of the Code provides that the term `dues' includes any assessment, irrespective of the purpose for which made, and any charges for social privileges or facilities, or for golf, tennis, polo, swimming, or other athletic or sporting privileges or facilities, for any period of more than six days.

Section 49.4242-1(a) of the regulations provides that, in addition to the charges made by a social, athletic, or sporting club or organization which are commonly understood to constitute dues or membership fees, as well as all other charges required to be paid to such a club or organization for the privilege of being a member of the club or organization or a member of a particular membership class, the term `dues or membership fees' also includes other amounts, as follows:

(1) Any assessment made by a social, athletic, or sporting club or organization, irrespective of the purpose for which made, and

(2) All charges made by a social, athletic, or sporting club or organization for (i) social privileges or facilities for any period of more than 6 days (whether or not consecutive), or (ii) golf, tennis, polo, swimming, or other athletic or sporting privileges or facilities for any period of more than 6 days (whether or not consecutive).

In determining whether a charge by such a club or organization constitutes dues or membership fees within the meaning of subparagraph (2) of this paragraph, the test is whether payment of the charge confers the right to use a social athletic, or sporting privilege or facility of the club or organization for the prescribed period. It is immaterial whether the privilege or facility is one for which a charge is mandatory, even though the member chooses not to avail himself of the privilege or facility, or whether the privilege or facility is one for which a charge is made only if the member at his own election, chooses to have the privilege or facility made available to him. Any privilege or facility offered by a social, atheltic, or sporting club or organization which is so directly related to a social, athletic, or sporting activity in which the club is engaged, or for which it was created, as to partake of the nature of the activity itself is considered to be a social, athletic, or sporting privilege or facility. This is true even though such privilege or facility, if considered entirely apart from any social, athletic, or sporting activity, would not in and of itself constitute a social, athletic, or sporting privilege or facility.

The use of the health treatment facilities is not considered to constitute the use of social, athletic, or sporting privileges or facilities of the instant social club within the meaning of the regulations quoted above. Accordingly, it is held that amounts paid by the members to the social club for health treatments are not `dues' within the meaning of section 4242(a) of the Code and, therefore, are not subject to the excise tax on club dues.