Dine Out Tonight Club, Inc. v. Dept. of Revenue Servs

In Dine Out Tonight Club, Inc. v. Dept. of Revenue Servs., 210 Conn. 567, 556 A.2d 580, 583 (Conn. 1989), the Supreme Court of Connecticut applied the true object of the transaction test to resolve an issue similar to the one presented in this case. 556 A.2d at 582-83. In Dine Out Tonight, members of a club paid a membership fee in exchange for a card that entitled them to a free meal with the purchase of a second meal of equal or greater value at restaurants participating in the club's plan. See id. at 581. A member also received a directory of the participating restaurants. See id. Under Connecticut's sales tax statutes, tangible personal property was defined as "personal property which may be seen, weighed, measured, felt or touched or which is in any other manner perceptible to the senses." See id. at 582 n.4. Thus, the issue was whether Dine Out Tonight was engaged in the selling of tangible membership cards and directories, or the selling of the intangible right to free meals. See id. at 582-83. In resolving this issue, the court reasoned: "A conclusion as to whether the sales tax is applicable to the plaintiff's membership fees requires a determination of the true object of the transaction between the club and its members. We must therefore ascertain whether the true object of that transaction is to provide club members with a card and a directory or to bestow upon them the intangible right to free meals under specified conditions. The determinant is the intention of the parties. We think that intention is evident. Obviously, prospective club members are not enticed to pay the plaintiff for the prospect of obtaining a card and a directory, items that would be of little or no value without the concomitant right to receive free meals. Conversely, the plaintiff could not expect to stay in business by offering for sale only a card and a directory. Manifestly, the sine qua non of the transaction between the club and its members is the intangible right to receive free meals and access to the knowledge of an expanding list of restaurants that provide them. The membership card and directory are merely indicia of that intangible right and incidental aids to its exercise. Because the transaction between the plaintiff club and its members is essentially the conveyance of an intangible right to free meals, the plaintiff's membership fees are not subject to the imposition of the Connecticut sales tax." Id. at 583.