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Tuesday
Jun192012

IRS Issues Rules on Tanning Tax: Only Certain Health Clubs Exempt

What You Need to Know

On June 11, 2010 the Internal Revenue Service (IRS) issued regulations relating to the 10% excise tax on indoor tanning services, scheduled to go into effect July 1, 2010. Per the regulation, the IRS will not impose the tax when indoor tanning services are included as part of membership dues of a health club.

The regulations specifically exempt “qualified physical fitness facilities” that provide access to tanning devices as part of membership fees. Exclusion from enforcing the tax is limited to businesses in which the “predominant business or activity is providing facilities, equipment, and services to its members for purposes of exercise and physical fitness.”

This exception does not apply to a fitness facility that charges separately for these services or that offers different pricing options to members based on whether tanning services are included (see more on this in the video from the IRS below).

Here is a helpful video from the IRS, further clarifying the exemption:

Also, the IRS has provided the following guidance (also available here):

Q: What is a qualified physical fitness facility?

A: A “qualified physical fitness facility” is a facility (i) in which the predominant business or activity is providing facilities, equipment and services to its members for purposes of exercise and physical fitness, (ii) indoor tanning services is not a substantial part of its business and, (iii) it does not offer tanning services to the public for a fee or offer different pricing options to its members based on indoor tanning services. To determine the predominant business or activity all facts and circumstances should be considered including, but not limited to, the following:

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      • The cost of the equipment;
      • Variety of services offered;
      • Actual usage of services by customers;
      • Revenue generated by different services; and
      • How the entity holds itself out to the public through advertising or other means.

Q: Are membership fees taxable when paid to a "qualified physical fitness facility" that provides access to indoor tanning services?

A: No, the membership fee is not subject to the indoor tanning services tax if the facility meets the definition of a "qualified physical fitness facility."

Beginning July 1, 2010, non-exempt facilities must impose and remit the tax. According to the regulations, similar to a sales tax, the ten percent excise tax is to be paid by the consumer. Further details are available from the IRS.

Background

As detailed in the March 22nd special edition of Capitol Report, Congress enacted the tax as part of health care reform legislation. The tax is estimated to raise $2.7 billion by 2019.

The measure was a last minute inclusion in December just before the bill was passed by the Senate. According to media reports at the time, the tax was a compromise between Democratic negotiators, the American Medical Association, and the American Academy of Dermatology Association.

The groups agreed to support the legislation after the tax on tanning services was included in lieu of what became known as the “Botox Tax.”

For questions about the tanning tax and compliance, contact Tim Sullivan, Legislative Analyst, at ts@ihrsa.org or (800) 228-4772.

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