Opinion ID: 1283164
Heading Depth: 1
Heading Rank: 5

Heading: are memberships taxable?

Text: We note that the applicable tax statutes have been amended without substantive change during the time period covered by the audit; thus, we will cite to the most current version in effect on February 28, 2005, which is the end of the audit period. [8] During the years covered by the Berrington audit, Nebraska imposed a sales tax on gross receipts, [9] defined to include the sale of admissions which means the right or privilege to have access to or to use a place or location. [10] Although the statutory language was silent on the taxability of memberships, the Department of Revenue duly adopted and promulgated regulations which distinguished taxable admissions from nontaxable memberships as follows: 044.01 The term admission, as used herein, means the right or privilege to have access to or use a place or location where amusement, entertainment or recreation is provided. The gross receipts from the sale of admissions, including surcharges, are subject to sales tax. This includes season or subscription tickets for specific occasions or for multiple occasions, either limited or unlimited during a period of time. 044.02 The term membership, as used herein, means having all the participation rights of belonging to an organization which shall include, but are not necessarily limited to, the voting for officers, the holding of office, and the ability to change the constitution and bylaws. The payment or receipt of membership dues [is] exempted from the sales and use tax. Membership shall not include any charge that is intended to allow admission to a place or event, or series of events, rather than to confer participation rights. [11] Applying these regulations, the department concluded that memberships sold by Eldorado Hills were taxable as admissions, because the memberships did not grant concurrent rights to vote for officers of Berrington, to hold office in Berrington, or to change the constitution and bylaws of Berrington. Berrington contends that the focus of this inquiry should be on the members' relationship with Eldorado Hills, not with Berrington. Berrington contends, restated, that because members, through their advisory board, have a close working relationship with Eldorado Hills management and are able to influence policies and operations, they have participation rights which distinguish their memberships from taxable admission fees. [4] The key language of the applicable regulation is all the participation rights of belonging to an organization. The organization in this case can only be Berrington, the recipient of revenue generated by the operation of Eldorado Hills and the party liable for any sales tax payable on such revenue. Eldorado Hills has no separate legal organization or identity distinct from Berrington. The advisory board has no separate legal identity and is not the recipient of membership dues. Thus, the question turns on whether persons considered members of Eldorado Hills have participation rights with respect to Berrington. It is clear from the record that they do not. The payment of membership dues does not entitle a member to hold office in Berrington, vote for officers of Berrington, or change Berrington's organizational documents. The members' collective ability to influence management decisions through the advisory board does not constitute a right to participate in the legal or business affairs of Berrington. While it is no doubt a sound business practice for Berrington to accommodate the wishes of Eldorado Hills members whenever possible, it is under no legal obligation to do so. Persons paying membership dues acquire certain rights to use the golf course and facilities at Eldorado Hills, but they acquire no legally cognizable participation rights with respect to Berrington. For example, members whose dues give them the right to use the golf course might unanimously agree that certain improvements should be made to the course, but they would have no right or power to require Berrington to undertake the improvements if it chose not to do so. Berrington argues that we should consider a 2005 amendment to § 77-2701.16(11) as an aid to interpreting the regulation upon which the department based its determination. The amendment added in part the following language to the statute: An admission includes a membership that allows access to or use of a place or location, but which membership does not include the right to hold office, vote, or change the policies of the organization. [12] This amendment did not become effective until after the audit period at issue in this case, and we therefore do not consider it. The regulation which was properly adopted and filed at the time of the audit period had the effect of statutory law [13] and constitutes the substantive law applicable to this case. Under its plain language, the amounts paid by Eldorado Hills members to Berrington constitute taxable admission charges, not exempt membership dues. [5] Berrington also argues that the audit was arbitrary and capricious and that the department and the district court failed to independently analyze the pertinent facts, thereby placing upon Berrington the burden to prove the assessment wrong. [14] We need not comment upon the manner in which the audit was conducted, because it is clear that a full factual record was made upon Berrington's petition for redetermination, and it is likewise clear that both the department and the district court conducted a reasoned analysis of the issues presented based upon the facts included in that record. Moreover, there is no merit to Berrington's argument that some deficiency in the audit unfairly shifted the burden of proof. Under the applicable regulation, [t]he payment or receipt of membership dues are exempted from the sales and use tax. [15] An exemption from taxation is never presumed, and the burden of showing entitlement to a tax exemption is on the party claiming the exemption. [16]