DIRECTIVE: Membership fees paid solely in consideration for admission to "discount" department stores, retail outlets, and wholesale clubs are not subject to Massachusetts sales tax under G.L. c. 64H, § 1.
Various businesses are engaged in selling a variety of tangible personal property through "discount" department stores, wholesale clubs, and retail outlets. In general, these stores are not open to the general public. Rather, the stores are reserved for the use of customers who have paid a membership fee that gives them to the right to enter the store to purchase property, presumably at a discount price. A member identification card or badge is generally necessary to gain entrance to the store. In some cases, the membership fee also entitles the member to receive a copy of a newsletter, which is distributed at stated intervals.
The membership fee is not directly applied toward the purchase price of any particular item of tangible personal property. In fact, the membership fee is the same whether or not the customer purchases any merchandise. The amount of the fee is fixed for a set period, and is renewable for each subsequent period for the same fixed amount.
II. DISCUSSION OF LAW:
Massachusetts imposes a five percent sales tax on all sales at retail including rentals of tangible personal property, in Massachusetts by any vendor, unless otherwise exempt. See G.L. c. 64H, § 2. The excise is imposed at the rate of five percent of the gross receipts of the vendor. G.L. c. 64H, § 2. "Gross receipts" is defined as the total sales price received by a vendor as a consideration for retail sales. G.L. c. 64H, § 1. "Sales price," in turn, is defined as "[t]he total amount paid by a purchaser to a vendor as consideration for a retail sale, valued in money or otherwise." Id. "Retail sale" is defined as "sale of [telecommunication] services or tangible personal property or both for any purpose other than resale in the regular course of business." Id.
The Department previously has examined whether certain membership fees are subject to sales tax. In Letter Ruling 85-9, the Department considered the taxability of membership fees paid in consideration for membership at a video store and concluded that the membership fee was part of the total consideration paid for a retail sale, even though the fee was paid prior to any movie rental. The Department reasoned that the membership charge was, in effect, a prepayment for a movie rental that resulted in a reduced daily rate at the time of the movie rental. For that reason, a fee paid in consideration for membership in a video rental stores was subject to tax.
In contrast to the membership fees discussed in Letter Ruling 85-9, which were deemed to be prepayments for taxable sales, membership fees paid solely for admission into "discount" department stores, retail outlets and wholesale clubs are paid in consideration for the right to enter a store not otherwise open to the public, and for the right to purchase nontaxable as well as taxable merchandise. As other jurisdictions have noted, if a customer becomes a member by paying a membership fee and subsequently decides not to avail himself of the right to make purchases, no sale at retail occurs. Therefore, the membership fee is not paid in consideration for a retail sale, and is not subject to tax. See, e.g., Nash Finch Company v. South Dakota Department of Revenue, 312 N.W.2d 470 (1981); Pioneer Markets, Inc. v. Commissioner of Revenue, 85 S.D. 24; 176 N.W.2d 477 (1970); Connecticut Department of Revenue Letter Ruling 92-4 (1992); Illinois Department of Revenue Private Letter Ruling 91-0448 (1991). 
For the reasons discussed above, membership fees paid solely for admission in "discount" department stores, retail outlets, and wholesale clubs are not subject to sales tax under G.L. c. 64H, § 1.
Commissioner of Revenue
December 23, 1992
The identification badge and newsletter that may be received as part of the membership fee are incidental to, and mere indicia of the intangible right to enter the establishment and purchase property. As such, the transfer of these items in connection with membership to these establishments is not subject to sales tax as a sale of tangible personal property. However, the wholesale club, retail outlet or discount department store is considered the consumer of the badges and newsletter and must pay the tax on its purchases.
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