WRAL Investigates

WRAL Investigates: Private country clubs can claim nonprofit status

Posted February 5, 2013 6:00 p.m. EST
Updated February 5, 2013 6:49 p.m. EST

— Carolina Country Club is one of the most prestigious clubs in Raleigh. Formed in 1910, membership to the five-star facility is invitation only. The club’s latest tax forms show it generated close to $13 million from dues and other sources. Thanks to its nonprofit status, the club pays no corporate income tax.

The Internal Revenue Service tax code says social clubs can apply for tax-exempt status. That includes private country clubs that charge tens of thousands of dollars just to join.

The National Football League and other big-time sports get the same tax breaks.

Marty Martin, an attorney who specializes in more traditional non-profits, such as churches or charities, says country clubs don't get all the breaks that charities do. However, country clubs are also not required to have any charitable purpose.

“Is there a public good that's being served here that justifies a tax subsidy?” Martin said. “Are these organizations demonstrating positive impact, and how can they demonstrate that to the community at large?”

At one time, country club members could deduct their dues. However, Congress ended that tax perk in the 1990s. The clubs do pay property and sales tax and tax on investment and non-member income. The real advantage is that they do not pay corporate income tax.

Carolina Country Club showed $1.2 million in profit in its last report, and every member-related dime is tax free. Duke University tax law professor Rich Schmalbeck says that sets them apart from for-profit clubs.

“When (for-profit clubs) have revenues that exceed expenses, they do pay tax on that,” he said.

The WRAL Investigates team examined the books of several area nonprofit country clubs. Chapel Hill Country Club brought in $6 million in total revenue. MacGregor Downs Country Club in Cary brought in more than $4 million. North Ridge Country Club in Raleigh collected more than $9 million in total revenue.

According to the newest tax returns, none of the clubs took advantage of the tax exempt status because all three lost money. All of their expenses go to salaries and amenities.

“Even if they use the profits simply to expand their facilities, there are lots of companies that mostly use their profits to expand their facilities and they still have to pay corporate income tax,” Schmalbeck said.

The nonprofit status does come with strings. New member advertising is restricted, profit can't pay dividends and clubs must open their books.

“One of the trade-offs is that these documents are public documents, because it's your money and my money that is indirectly subsidizing the operation of these types of organizations,” Martin said.

WRAL Investigates tried to contact all of the private clubs mentioned in the story for comment, but no one returned the calls. Not all private clubs claim nonprofit status. Clubs such as Raleigh Country Club and Prestonwood Country Club in Cary have for-profit ownership groups. It's a business decision for each club, and tax code gives them the option.