Membership Fees Subject to Tax in Pennsylvania

The Pennsylvania Department of Revenue (DOR) has issued a letter ruling discussing the taxability of membership fees for a professional association. The DOR states that the taxability of a membership fee depends upon what a member receives in exchange for the membership. If a member does not receive any taxable tangible personal property (TPP) or taxable services in exchange for the fee, then the membership fee is not taxable. If a member receives taxable TPP or services, then the membership fee is taxable. The DOR agreed that a membership fee itself is not taxable since it is not an enumerated taxable good or service but reminds sellers that the analysis of a good or service extends beyond the label assigned to it by the seller. In this case, the membership fee entitled members to receive nontaxable services (including networking opportunities, discounts on certifications, and certification tracking) and taxable TPP (the association’s published guide, tools and templates, on demand webinars, and publications). Since the member is receiving both nontaxable services and taxable tangible personal property, the entire charge for the membership is subject to sales tax if the member is located in Pennsylvania. Finally, the DOR rejected the association’s use of the “essence of the transaction” test for support that the membership fees are not taxable, noting that the Pennsylvania Supreme Court has specifically refused to adopt the “essence of the transaction” test in multiple court cases. (Legal Letter Ruling No. #SUT-20-001, Pennsylvania Department of Revenue, January 31, 2020)

UPDATE: The Pennsylvania DOR has withdrawn this legal letter ruling from its website after receiving feedback from professional organizations.

Posted on February 13, 2020