Colorado Releases Guidance on Membership Fees

Monday, July 14th, 2014

A person filling out a membership application.

The Colorado Department of Revenue ("Department") recently released an information letter on the taxability of membership fees.

The taxpayer was an association for instructors and trainers in the recreational sport and entertainment industry. The association charged an annual membership fee. In exchange for the membership fee, a member received an instructor's guidebook, the right to display and use the association's marketing material, the right to purchase association merchandise for resale, the option to become certified in the recreational sport, and a magazine subscription.

Colorado taxes sales of tangible personal property. It generally does not tax sales of services or intangible rights. When a sale includes both taxable items and nontaxable items, the state treats it as taxable sale. There is an exception for sales where (1) the true object of the sale is the nontaxable item and (2) the taxable item is inconsequential.

Here, the membership fees paid for taxable items and nontaxable items. The guidebooks, marketing materials, and magazine were all taxable tangible personal property. The options to purchase association merchandise and to become certified were intangible rights and thus not taxable. The taxpayer therefore had to collect tax on the membership fees unless it could show that the "true object" exception applied.

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