Royal Oaks Country Club initiation fees can be wholly deducted from the state’s business and occupation tax, the Washington Supreme Court unanimously affirmed Thursday.
The nonprofit golf and social club sought to deduct initiation fees from its business and occupation tax in 2014. At that time, the Washington Department of Revenue determined that only about 65 percent of the initiation fees could be deducted, according to court records.
After Royal Oaks sought the deduction in 2014, something it had not typically done, the Department of Revenue audited it for the 2011-16 tax period. The Vancouver club offers a number of membership levels, with initiation fees that ranged from $200 to $10,000 in 2016 — the last year of the audit.
The Department of Revenue argued that a portion of the initiation fee was for access to facilities and, as a result, that portion was not subject to the exemption. Royal Oaks argued that initiation fees are separate from dues and fees.
“The Department of Revenue appreciates the court’s time and is currently reviewing the decision,” the agency’s communications manager, Mikhail Carpenter, said in a statement Friday.
Royal Oaks celebrated the ruling in a statement from its attorney, Steven Turner.
“After more than six years of fighting with the Department of Revenue, Royal Oaks Country Club is extremely gratified today following the Washington Supreme Court’s unanimous decision,” Turner said in an email. “This landmark ruling is a resounding victory for the rule of law and for the even-handed application of our state’s tax statutes.”
At the case’s core was a disagreement over a state law that says businesses can deduct “bona fide initiation fees and dues.”
“Royal Oaks members must pay their first month’s dues prior to use of any service or facility regardless of whether members paid a proprietary or a dining-only initiation fee,” Justice Barbara Madsen wrote in the opinion. “Royal Oaks’ initiation fees allowed nonmembers to become members, assessing a one-time fee for the privilege of membership in the club.”
