Background
Overbrook Golf Club (OGC) and Radnor Valley Country Club (RVCC) are private, nonprofit, member-owned recreational clubs in Radnor Township, Delaware County. Like most private clubs, they collect membership dues, initiation fees, and capital assessments from their members. They already paid the Township’s business privilege tax on commercial revenue — pro shop sales, caddy fees, locker rentals, non-member events. The dispute was narrower: whether the membership dues and assessments themselves were also subject to the Township’s Business Privilege Tax (BPT).
In 2014, the Township audited the clubs and concluded they had improperly excluded membership revenue from the BPT base. The parties agreed to stay litigation while the Pennsylvania Supreme Court decided Fish v. Township of Lower Merion, 128 A.3d 764 (Pa. 2015), which addressed whether the Local Tax Enabling Act’s (LTEA) prohibition on taxing “leases or lease transactions” precluded applying a business privilege tax to a for-profit landlord’s rental income. After Fish was decided in 2015, the Township’s finance director concluded that the same logic supported taxing the clubs’ membership revenue. In May 2022, the Township issued assessments of $94,608 (OGC) and $37,857 (RVCC) for tax years 2016–2021.
The clubs paid under protest and appealed. After a Local Tax Hearing Officer affirmed the assessments and a two-day de novo bench trial in Delaware County Common Pleas, the trial court vacated the assessments and ordered refunds. The trial court held that the clubs were not “businesses” under the BPT Code and that the LTEA expressly prohibits taxing nonprofit recreational clubs’ membership dues. Radnor Township appealed to the Commonwealth Court.
The Court’s Holding
The Commonwealth Court (Judges McCullough, Wojcik, and Wolf) affirmed in an opinion by Judge McCullough, resolving both issues the Township raised.
The court’s primary analysis focused on whether the clubs are “engaging in a business” under the Township’s BPT Code. The BPT Code defines “business” circularly — it is “all businesses . . . in which there is offered any service or services to the general public or a limited number thereof” — offering no guidance on whether a nonprofit club qualifies. The court looked to the LTEA’s own definition: a “business” is “an enterprise, activity, profession or any other undertaking . . . conducted for profit or ordinarily conducted for profit.” 53 P.S. § 6924.501 (emphasis added). Black’s Law Dictionary, Merriam-Webster, and the U.S. Supreme Court’s citation of Bouvier’s Dictionary in Commissioner v. Groetzinger, 480 U.S. 23 (1987), all define “business” as commercial activity conducted for livelihood or gain.
Applying this standard, the court held that OGC and RVCC simply are not businesses under the BPT Code. They are member-owned nonprofits. No profits are distributed; dues fund operations; initiation fees fund capital improvements. A member cannot “do business” for profit with herself — and “[b]y extension, members of a member-owned club do not ‘do business’ with the club.” The court also agreed with the trial court on a second, independent ground: members do not receive “services” in the commercial sense. Access to the golf course, pool, and dining room flows from an ownership interest and contractual membership rights, not from a service transaction with an independent business. Citing McCaffrey v. Pittsburgh Athletic Association, 293 A.2d 51 (Pa. 1972), the court characterized the relationship as ownership and contract, not service-provider and customer.
Because the clubs were not “engaging in a business” under the BPT Code, their membership revenue was not “gross receipts” subject to the tax. The court declined to reach the Township’s alternative argument that Fish compelled a different result, or whether Section 301.1(f)(7) of the LTEA — which expressly prohibits taxing “membership dues, fees or assessments of charitable, religious, beneficial or nonprofit organizations including but not limited to sportsmens, recreational, golf and tennis clubs” — independently barred the assessment.
Key Takeaways
- Under the LTEA’s definition of “business” and standard tools of statutory construction, a local business privilege tax applies only to entities operating for profit. Nonprofit, member-owned clubs do not meet this threshold, regardless of the revenue they collect from dues and assessments.
- Club members do not receive “services” from their member-owned club in the commercially taxable sense. The member–club relationship is one of ownership and contract, not a commercial transaction with an independent service provider. Membership dues, initiation fees, and capital assessments are not “gross receipts” from services rendered.
- The Township’s reliance on Fish v. Township of Lower Merion, 128 A.3d 764 (Pa. 2015), was misplaced. Fish addressed the LTEA’s exclusion for “leases or lease transactions” as applied to a for-profit commercial landlord. It did not address — let alone authorize — applying a business privilege tax to nonprofit social clubs on membership revenue.
- Pennsylvania municipalities may tax a nonprofit club’s commercial revenue streams (pro shop sales, non-member activities, locker and caddy fees) under a business privilege tax, but may not tax membership dues and assessments collected in connection with the core nonprofit membership relationship.
Why It Matters
Overbrook Golf Club draws a clear line between a nonprofit club’s commercial revenue and its membership revenue for Pennsylvania business privilege tax purposes. Townships and boroughs that had relied on the Fish theory — arguing that the LTEA’s Section 301.1(f) exclusions only bar a direct transactional tax on membership dues, not a business privilege tax on the privilege of doing business as a nonprofit club — face a direct rejection from the Commonwealth Court.
For the estimated 300 Pennsylvania municipalities with business privilege taxes, the case calls for a reassessment of assessments against nonprofit social and recreational clubs. Clubs that paid assessments under protest may have live refund claims. Practitioners advising local taxing authorities should note that even a broadly worded BPT ordinance does not reach membership revenue where the underlying entity lacks a profit motive — and the Commonwealth Court will look past the ordinance to the enabling statute’s definition of “business” to supply that limiting principle.