Rev. Rul. 55-527

Clarification of Revenue Ruling 175, C.B. 1953-2, 327, has been requested with respect to the application of the tax on admissions, imposed by section 1700 of the Internal Revenue Code of 1939, to amounts paid to commercial beach clubs as `membership fees' and for the rental of cabins and cabanas, and to amounts paid to ocean front hotels for the rental of cabins and cabanas maintained by such hotels.

The beach clubs are owned and operated by private enterprises. In each case the club property includes a bathing beach on the ocean front. Located on the property are cabins, cabanas, and facilities for dining, dancing and other entertainment. Admission to the clubs and use of their facilities is limited to those designated as `members' and to their guests. `Members' are those persons who have paid `membership fees' for which they receive membership cards entitling them and a limited number of guests to enter the club property for the season and to use the beach, surf and other facilities. The `members,' however, have no voice in the management of the enterprise nor do they have any of the usual privileges granted to members of a membership club, as contemplated by section 1710 of the Code, relating to the tax on dues and initiation fees.

The hotels are located on the ocean front and, in addition to their principal business of renting rooms, also maintain cabins and cabanas which they rent to their patrons and to others. No club or membership organization exists. Hotel patrons usually are not required to rent a cabin or cabana as a condition to admission to the swimming pool or other facilities, but may do so far their own convenience. Other persons, however, must rent a cabin or cabana in order to be admitted to such facilities.

Revenue Ruling 175, supra , holds that where a seasonal lease of a cabin or cabana from a club, which does not qualify as a social, athletic, or sporting club or organization within the meaning of section 1710 of the Code, entitles the lessee and his family to admission to the club grounds and to use the facilities maintained by the club, the charges made for the lease of the cabin or cabana, as well as daily charges for guests, constitute charges for the right of admission and, as such, are subject to the tax on admissions imposed by section 1700(a) of the Code.

The principles laid down in Revenue Ruling 175, supra , to the effect that charges made by a commercial beach club for the seasonal lease of cabins and cabanas to gain admission to a bathing beach area and to the use of the facilities constitute charges for admission, apply to any charge which must be paid in order to gain admission. Thus, where a person can secure the right of admission to the premises of the beach club and the use of the facilities only by payment of the fee designated as a `membership fee,' payment of such a fee is, in fact, payment for admission to the club premises and use of the facilities, and is subject to the admissions tax. Likewise, where, in addition to the `membership fee,' the rental of a cabin or cabana is required in order to be entitled to use of the beach facilities, the amount paid for the rental of the cabin or cabana is also a payment for admission and is subject to the admissions tax.

If, however, the member of such a club is not required to rent a cabin or cabana in order to be entitled to the use of the beach and swimming facilities, but can secure the right to use these facilities upon payment of the membership fee alone, then the amount paid for the cabin or cabana is considered a payment for service and not for admission and, therefore, is not subject to the admissions tax.

The same general principles apply in a case where oceanfront hotels maintain cabins and cabanas which they rent to their patrons and to others. If the hotel patron is not required to rent a cabin or cabana in order to be entitled to use of the hotel beach and swimming facilities, but does so for his own convenience, the amount paid for the rental of the cabin or cabana is not a payment for admission and therefore is not subject to the admissions tax. But, if the hotel patron is not admitted to the hotel beach and swimming facilities unless he rents a cabin or cabana, the amount paid as rental is subject to the admissions tax. Likewise, the amounts paid by persons other than patrons for rental of the cabins and cabanas maintained by the hotel are subject to the admissions tax, since the rental of the cabin or cabana entitles those persons to admission to the hotel beach and swimming facilities. The tax applies whether the rental is on a daily, weekly, monthly, or yearly basis