Facilities offering indoor tanning recently received more guidance on the 10 percent excise tax on indoor tanning services added by the Patient Protection and Affordable Care Act in 2010.
The IRS’s final regulations on the excise tax, effective June 11, 2013, substantially adopt the rules of the 2010 proposed and temporary regulations.
Health Club Exemption – Under the 2010 regulations, any membership fee paid to a qualified physical fitness facility (QPFF) that includes access to indoor tanning services is exempt from the tax. For a facility to qualify as a QPFF, its main business or activity must be to serve as a physical fitness facility. These qualified facilities do not:
- Charge separately for tanning services
- Offer tanning services to the general public
- Offer different membership fee rates based on access to tanning services
The final regulations also exempt qualified physical fitness facilities from the excise tax because access to tanning services is incidental to the main business of this type of facility.
Bonus Points The final regulations determined that the tanning tax applies only if an amount is paid for indoor tanning services. For services at a reduced rate, the tax applies only to the actual amount paid for the services.
The tax is not applicable to tanning services customers receive by redeeming bonus points through a loyalty program or similar program. If a promotion entitles customers to buy a certain number of tanning sessions to receive a “free” session, the tax applies to the purchase of the package of tanning sessions but not to the redemption of the additional session.
Bundled Services – Sometimes various services are bundled together and may include access to indoor tanning services for a certain time period, including “free” or reduced-rate tanning services, and other goods and services. In general, the final regulations keep the formula for applying the tax only to the portion of the amount paid for bundled services that is reasonably attributable to tanning services.
Under that formula, a ratio is applied to the total amount paid. The ratio is determined by comparing the tanning services charge to the entire bundled services charge. But the final regulations authorize future guidance to provide more options to make this determination.
Undesignated Payment Cards – An “undesignated payment card” is a gift certificate or gift card that the recipient can redeem, but doesn’t have to redeem, for tanning service. The most practicable time for collecting the excise tax on an undesignated payment card is when it is purchased, not when it is redeemed for tanning services. However, the final regulations keep the rule that the tanning tax is imposed, not when someone buys an undesignated payment card, but when the card is redeemed to pay for tanning services. At that point, a reasonable determination can be made that a payment is specifically for tanning services.
Membership and Enrollment Fees – The final regulations impose the excise tax on amounts paid for prepaid monthly membership and enrollment fees to a tanning services provider – other than a qualified physical fitness facility. The regulations make it clear that the tax applies even if a member doesn’t use the tanning services during the period covered by the fee.
The final regulations also say that, if providers charge a fee to allow customers to suspend membership for one or more months without being charged an enrollment fee to restart the membership, the fee paid to suspend membership temporarily is paid for indoor tanning services because it allows the customer to receive tanning services at reduced prices.