97-022
April
21, 1997 - RESPONSE FROM TAX COMMISSION
April
2, 1997
Dear
Ms. Rees:
Thank
you for talking with me over the phone last week about the questions I had
regarding my health club. You had asked me to list my questions so that they
may be addressed. I would like to be in compliance with your regulations and
hope for a response as soon as is feasible so that I may integrate the
necessary changes.
I
have decided to take your suggestions to contact those who have signed yearly
contracts to send them letters requesting that taxes be paid in addition to the
rates they have already agreed to pay through the year.
Some
of the items I have concern about are as follows:
How
should we handle single admittance to an aerobics class?
If
a client wishes to use the exercise equipment rather than be lead through
instruction in a class, do we charge taxes on a single admittance?
Do
we need to charge taxes on our 10-punch passes? (These are used primarily for
aerobics classes.)
Do
we need to charge taxes on a monthly pass?
Do
we need to charge taxes on community-service oriented exercise classes (offered
through XXXXX)?
Do
we pay taxes on use of our tanning machine?
Do
we charge taxes on massage therapy?
I
believe we thoroughly covered taxing Physical therapy patients who after
physicians treatment, engaged in exercise some-what independent of the Physical
Therapy department (we are to charge taxes).
Can
those who have committed to pay on a monthly basis (on yearly contracts) and
have
signed
contracts with the required monthly payments (especially those who have
requested that their banks do automatic transfers) be allowed to continue their
contracts as issued? Then, as they resign their contracts, they would have
taxes added into the new contract. As you can well understand, it would be an
extremely difficult and costly matter for me to change all of those contract
amounts through the banks. And furthermore, it may make the contract null and
void to change rates, allowing patrons to cancel contracts. This could
potentially have a terrible impact on my business. Thus, I suggest as the
contract expire (some expire each month), we add the tax onto them as they
resign their new commitment. All patrons would then be integrated into the tax
payment within one year's time.
We
talked about numerous other questions relating to this complicated situation.
My memory fails me at this time, so I send the list of questions above, knowing
that I may have overlooked something.
As
we discussed on the phone, I am anxious to make the changes needed to comply. I
am somewhat worried about being able to integrate these changes without
crippling my small business. I have been paying taxes on retail sales, thus I
do have a tax number and do not need to apply for one (as NAME in Customer
Service has sent me an application).
Please
advise on any possible solutions to this problem. Thanks again for your
attention to this matter.
Sincerely,
OWNER
April
21, 1997
NAME
ADDRESS
CITY
STATE ZIP
Advisory
Opinion - Application of Sales Tax to Club Membership Fees and Other Charges.
Dear
NAME,
We have received your request for
sales tax guidance pertaining to charges to your customers for membership dues and
other activities. We offer the
following:
Utah law imposes sales tax on
charges for admission or user fees for recreation or athletic activities. Lessons and personal services are not
taxable. With regard to your particular
business situation, sales tax applies as shown below:
1. Membership fees are taxable. Charges to
your members for use of the facility and equipment are taxable. As we understand your arrangement, your
patrons purchase use of the facilities for some spcified amount of time. The contract locks in the price that you
charge for admission for the term of the contract. Payment for use of the facility is made in advance each month,
and you never accept a lump sum payment for the entire term of the
contract. Sales tax is calculated on
each monthly payment.
Because sales tax rates fluctuate
with actions of state or local legislative bodies, the sales tax due on monthly
payments over the course of a contract may also fluctuate. If the sales tax rate changes during the course
of the contract, the new rate applies to monthly fees charged after the
effective date of the rate change. The
tax commission has no authority to permit you to collect tax at a rate that is
different from the effective tax rate.
To avoid confusion about this tax obligation, we advise you to make sure
that your contracts clearly specify that the patron is obligated to pay the
fixed monthly membership fee plus sales tax.
2. Separate charges for aerobic lessons
are not taxable. Charges to patrons who
only purchase access to aerobic lessons (or “psychles” or “spinning” classes)
are not taxable, whether the patron pays at the time of the lesson or pays in
advance by purchasing a punch card or monthly pass. If these types of lessons
are available to members at no extra charge, the entire cost of the membership
is still taxable. However, if a
punchcard or pass allows use of the entire facility, the sale of the punchcard
or pass is taxable as sales of memberships.
3. Separate charges for massage, physical
therapy, and personal training are not taxable - Separate charges to members or
nonmembers for a massage, or instruction by a physical therapist or personal
trainer are not taxable. If these
services are included in the price of the membership at no extra cost, the
entire membership fee is still taxable.
You mentioned that a patron may use
your facility in conjunction with physical therapy and rehabilitation. We are not sure exactly how these transactions
are structured, but the nature of the transaction will determine whether tax is
due. For that reason, we present two
possible scenarios:
a. If
a therapist directs his or her patient to join a fitness center so that the
patient has access to the exercise
equipment, your charges to that patient for use of the facility are taxable
like any other membership. Separate
charges by the therapist for health care services are not taxable.
b. If
the therapist enters a contract with you to rent the use of your facility to
treat his or her patients, the result is different. Arguably, the transaction between your facility and the therapist
is a nontaxable real estate tranaction.
In any event, the therapist is not purchasing admission for recreation or
athletic activity, so your charges to the therapist are not taxable. In this situation, we assume that there is
no sales transaction between you and the patient. Instead, the patient purchases health care services directly from
the therapist (including use of the facility).
If that is the case, no sales tax is due on the charge by the therapist
to the patient.
4. Separate charges for tanning are not
taxable. Again, charges over and above
the cost of the membership fee are not taxable.
Please let us know if you have other
questions.
For
the Commission,
Joe
B. Pacheco,
Commissioner