California Board of Equalization Discusses Taxability of Membership Fees

The bulletin explains that membership fees that are related to the anticipated retail sale of tangible personal property are subject to sales tax when the retailer sells its products only to members, and the membership fee exceeds a “nominal amount”. Membership fees that do not exceed the “nominal amount” are generally not subject to tax. In addition, membership fees that are not related to the anticipated retail sales of tangible personal property are not subject to tax.

When are charges for membership fees taxable?

Membership fees that are related to the anticipated retail sale of tangible personal property are subject to sales tax when the retailer sells its products only to members, and the membership fee exceeds a nominal amount, as specified in Regulation 1584, Membership Fees. Membership fees that do not exceed the nominal amount are generally not subject to tax.

In addition, membership fees that are not related to the anticipated retail sales of tangible personal property are not subject to tax.

What is a nominal amount?

• Effective January 1, 2016, the nominal amount will be adjusted to an amount totaling $60 or less per year.
• Effective January 1, 2011, nominal amount means an amount totaling $55 or less per year.

What have the membership fee nominal amounts been historically?

• $55 or less, effective January 1, 2011
• $50 or less, effective January 1, 2006
• $45 or less, effective January 1, 2001

When is the nominal amount adjusted?

As provided in Regulation 1584, every five years beginning September of 2000, the threshold for the nominal amount is adjusted to the nearest $5, effective the following January 1, to reflect changes in the California Consumer Price Index (CCPI) whenever that change is more than 5 percent higher than any previous adjustment. The last adjustment was calculated beginning in September 2000, and effective January 1, 2011. Based on staff’s computation this year, the CCPI has increased by approximately 10 percent since 2010, and therefore, the nominal amount threshold will increase, rounded to the nearest $5, to $60 per year, effective January 1, 2016.

Who is affected by the setting of this nominal amount?

• Membership retailers (Costco, Sam’s Club, etc.) and their customers.

How are those who are affected notified?

• In any year the membership fee nominal amount is increased, the BOE amends Regulation 1584 to include the new nominal amount. This regulation is available on the BOE website and is distributed to subscribers of the monthly BOE Updates and Notification of Regulatory Change.
• Known membership retailers such as Costco and Sam’s Club are notified by staff directly.
• An article is published in the Tax Information Bulletin to notify taxpayers of the change.
• An article is published in the Tax Practitioner Newsletter to notify practitioners of the change.
• A notice of the change may also be posted on the BOE website.