Vancouver’s Royal Oaks Country Club and the Washington Department of Revenue have laid out their cases for an upcoming hearing before Washington’s Supreme Court.
The case looks at whether or not the club’s initiation fees can be deducted from the state’s business and occupation tax.
The case was brought to the Supreme Court by attorneys for the Department of Revenue after an appellate court ruled in favor of Royal Oaks.
According to court documents, Royal Oaks sought to deduct initiation fees from the nonprofit’s business and occupation tax in 2014. The club offers a number of membership levels, with initiation fees that ranged from $200 to $10,000 in 2016. That was the year that Revenue audited the country club.
At that time, the taxing agency determined that around 65 percent of the initiation fees could in fact be deducted. According to state law, businesses are able to deduct “bona fide initiation fees and dues.”
Attorneys for the club and the Department of Revenue didn’t respond to requests for comment.
But in its latest brief, attorneys for the state argued that a portion of the dues were tied to services and retail and thus not deductible.
The club ended up paying the taxes owed, but filed a complaint in Superior Court, seeking a refund.
In his latest brief, Steven Turner, attorney for Royal Oaks, argued that the state law doesn’t define “bona fide,” “initiation fees” or “dues.”
“Thus, their ordinary meaning, as derived from the dictionary, must be used,” wrote Turner. “Because the payments in question meet the definition of ‘bona fide initiation fees,’ they are fully deductible.”
The brief distinguished the one-time initiation fees from the monthly fees that members pay to use the club’s facilities. It argued that the original state audit combined monthly fees and initiation fees into a single category when looking into the club’s finances.
“As noted by the Court of Appeals, however, this approach is contrary to the plain language of the statute,” Turner’s brief read.
“In sum, there is a qualitative difference between the initiation fees the members pay to be admitted to Royal Oaks and the dues that the members pay to make any use of the facilities and to enjoy any privileges,” he added.
Conversely, attorneys for the revenue department argued that a portion of the initiation fees went toward the cost of providing goods or services.
“The Court of Appeals erred when it instead concluded that Royal Oaks could fully deduct those payments, even though members unquestionably paid a large part of those fees for access to its golf, swimming and fitness facilities,” read the department’s brief.
“This is illustrated by the fact that some members paid $10,000 initiation fees for full access to those facilities, when the privilege of membership, including access to all social events, could be had for a mere $200 initiation fee,” it continued.
The club has various membership levels, with its highest members being able to vote in club elections, hold office and grant approval on “extraordinary issues.” They’re also able to transfer their membership to an immediate family member. Smaller initiation fees were paid by members simply wanting access to facilities, like golf, swimming, fitness or dining.
“Members effectively paid a surcharge on their initiation fees and dues in exchange for facility access,” read the department’s brief.
In its initial petition for review, the department argued that the lower court’s decision “will have far-reaching effects on the taxation of gyms and athletic facilities, country clubs, trade organizations, homeowners’ associations, membership-model stores and any other entity that charges initiation fees.”
However, Turner’s initial answer to the petition argued the case didn’t have substantial public interest and was “just one of many appellate decisions interpreting Washington’s tax laws.”
The Supreme Court is set to hear the appeal on Sept. 28.
