Ruling Request No. 93-04

Declaratory Rulings

Ruling Request No. 93-04

Re: Application of Sales/Use Tax to the Purchase of Membership In a Travel Plan

Request for Ruling

Taxpayer requests a ruling regarding the application of the sales and use tax to the purchase of a membership in a travel membership program developed by its client, ("Company").


The Company has developed a travel membership program that will enable members ("Members") to receive lower rates on airfare, hotel and motel rates, cruises, car rentals, vacation packages and other forms of travel.

Memberships will be sold through dealers ("Dealers") through multilevel marketing. Each Dealer will enter into a Company Dealer Contract ("Contract"). Dealers will be independent contractors and not employees of the Company. Dealers are not franchisees. Once a Dealer has signed a Contract, he can recruit additional dealers ("Direct Dealers") as a sponsoring dealer ("Sponsoring Dealer"). These Direct Dealers can then become Sponsoring Dealers by recruiting additional Direct Dealers.

The marketing program works as follows: Sponsoring Dealers purchase Memberships from the Company at a price of $125. Sponsoring Dealers then resell the Memberships either directly to Members at a price of $169 or to Direct Dealers at a price negotiated between the Sponsoring Dealer and the Direct Dealer. The Direct Dealer then resells the Memberships directly to Members at a price of $169. Each Dealer is required to have a state sales/use tax license.

The Membership Program works as follows: Members are entitled to use special services available through an affiliated travel agency. These services will locate the lowest available airfare and car rental rates, entitle the Member to lower rates at selected hotels, and provide access to rental condos at various vacation destinations. In addition, a Member receives over $500 in cash back coupons ("Coupons"). Coupons can be used in connection with certain airfares, cruises, and car rentals. In order to use a Coupon, a Member submits his paid receipt for the airfare, cruise or car rental and the applicable Coupon to the affiliated travel agency which then sends the Member a check for the amount of the Coupon. Members pay all applicable sales taxes when they purchase rooms or transportation through the affiliated travel company. When a Member uses a Coupon, the Member pays any applicable sales tax on the full price and then receives a rebate equal to the amount of the Coupon. The amount of the Coupon is not subtracted in calculating the amount of the applicable sales tax.

Ruling Requested

The sales of Memberships by the Company or any of its Dealers are not "sales at retail" under the sales/use tax law because Memberships are not tangible personal property.


Under R.I.G.L. 44-18-7 (a), "sales" means and includes "...any transfer of title or possession...of tangible personal property for a consideration." What is being sold under the fact pattern presented is a membership in a travel program which entitles the purchaser thereof to various discounts. Since memberships are not tangible personal property there is no sale subject to tax.


The sales of Memberships by the Company or any of its Dealers are not sales at retail and therefore are not subject to tax under the sales/use tax law.

Since the sale of Memberships do not constitute sales at retail, Dealers would not be required to have a permit to make sales at retail.

Although the Company only sought a ruling under the sales and use tax law, it should be aware that it may be subject to the net income tax. Any solicitation by it of dealers in this state would subject it to the net income tax since it would be engaging in activities in this state for purposes of profit or gain (RIGL 44-11-1).

The Company would not be afforded any protection under 15 USC Sec. 381 (PL 86-272) because that law relates only to the sale of tangible personal property and dealership contracts represent the sale of intangible personal property.

This ruling may be relied upon by this taxpayer and shall be valid until the applicable statutory provisions are amended in a manner requiring a different result or until the underlying factual presentation changes.

R. Gary Clark

Tax Administrator

March 10, 1993