Washington Supreme Court Ruling Clarifies Sales Tax Application in Royal Oaks Case

The Washington Supreme Court recently ruled in Royal Oaks Country Club v. State of Washington, Department of Revenue, affirming that Royal Oaks’ initiation fees qualify as a “bona fide” initiation fee, allowing them to be wholly deductible under Washington’s business and occupation (B&O) tax statute, RCW 82.04.4282. This decision hinged on the interpretation that these one-time initiation fees were paid solely for the privilege of club membership and not in exchange for goods or services, a crucial factor under Washington tax law.

The Department of Revenue (DOR) initially argued that part of the initiation fees should be taxable since they provided access to club facilities, such as golf and dining. However, the Court differentiated access from the use of goods and services, holding that membership dues — not initiation fees — covered the costs associated with using club amenities. This distinction helped the court conclude that initiation fees, assessed only once upon joining, represented the value of entry into the club rather than ongoing services.

In this ruling, the Court emphasized that “bona fide” fees, which are not linked to ongoing goods or services, are fully deductible under Washington’s B&O tax law. This decision provides clarity on what constitutes deductible membership fees for clubs and similar organizations, reinforcing the separation between fees for membership privileges and charges for services. (Royal Oaks Country Club v. Washington State Department of Revenue, case number 101770-7, January 11, 2024)

Posted on October 30, 2024