Ten days ago when many of us celebrated the new year with resolutions to exercise more often or improve physical fitness, it's likely that sales taxes were not a factor impacting the choice of mechanism for implementing these life-improving changes. However, and in addition to general excitement over the season of freshly-minted gym membership cards and first-time reservations with enthusiastic fitness trainers, health and fitness clubs must be motivated to comply with differing state rules for sales taxes imposed on these transactions.
Many states, such as Indiana, Maine, and Maryland, do not impose sales tax on membership fees for fitness clubs. In those states that do impose tax on membership fees, such as Arkansas, Florida, New York, and Texas, applying sales tax to these transactions can be especially tricky. The complication is that the transaction may be taxable or exempt, depending on the ownership of the facility, the types of activities available at the club, or the scope of the membership.
For example, Florida imposes tax on dues paid to any organization, such as athletic clubs, health spas, civic, fraternal, or religious clubs, and organizations that provide physical fitness facilities or recreational facilities, as well as dues and fees paid to private clubs or membership clubs. However, the state exempts dues, membership fees, and admission charges imposed by nonprofit organizations, and admissions charged by physical fitness facilities owned or operated by certain hospitals.
Additionally, Florida specifically provides that fees paid to private clubs or membership clubs that do not entitle the payor to the use of the club's recreational or physical fitness facilities are not subject to tax. Examples of such fees include charges for professional instructions in any sport conducted at the club, so long as such charges are exclusively for the instructions and include the use of the facility only during the period of time the instructions are taking place.
In New York, dues paid to any social or athletic club are subject to sales tax if the dues of an active annual member, exclusive of the initiation fee, exceed $10 per year, and the initiation fee exceeds $10. In the case of a life membership, the tax is on the amount paid as life membership dues. However, a life member pays annual sales tax based on the dues of an active member, and must continue to make payment until the amount of the tax paid is equal to the amount of tax that would have otherwise been due had tax been imposed at the time the life membership was purchased and at the then applicable rate.
In addition to these issues for a fitness club's tax team, keeping resolutions may involve an encounter with a seasoned gym-goer gracefully prancing along like a gazelle, while you're thumping along on the treadmill just trying to stay upright. Performing math computations, such as converting minutes and seconds per mile into times per half mile/yard/foot/etc., can be a helpful distraction. An advanced version of this strategy is to consider the various approaches the states take for imposing sales tax on gym memberships, and compute the tax amounts for a membership purchase, total tax for the gym population, and the tax amount for each day, hour, and minute exercised.
By the time you get done, you will have probably knocked off at least a mile without thinking about how much farther until you can stop. When the hard work is over you can fondly remember the turkey dinners, cakes, and other goodies that were enjoyed during the holiday season.
By Christine Boeckel
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