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June 26 — Suntans and the Supreme Court might not appear to have too much in common, but they do for some Republicans in Congress.
The connection? Obamacare.
Opponents didn't get the decision they wanted in the U.S. Supreme Court's ruling in King v. Burwell, issued June 25, so they will keep trying to chip away at the Affordable Care Act through legislation.
That includes a recently introduced bill (H.R. 2698) to end an excise tax on tanning salons, according to the legislation's chief sponsor, Rep. George Holding (R-N.C.).
The tanning tax was imposed in 2010 to pay some costs associated with the ACA. The strategy is similar to advancing legislation to repeal the excise tax on medical devices, also established as an ACA offset.
That bill (H.R. 160) just passed the House by a wide margin and is on the Senate calendar, meaning it could come up for a floor vote at any time or get used by lawmakers as a magnet for other purposes.
ACA opponents see eliminating revenue streams as one way of weakening the law, and as an added bonus, eliminating such excise taxes boosts employment in unjustly targeted industries, Holding told Bloomberg BNA. Industry advocates have been even more pointed in their criticism, particularly over the issue of fairness.
“We're the only services industry that I'm aware of that pays an excise tax to the federal government,” said Bart Bonn, president of the American Suntanning Association and owner of 16 tanning salons in Nebraska, Iowa and Missouri.
The 10 percent tanning tax added 70 percent to his overall tax bill after accounting for all the other federal, state, local and payroll taxes he already pays, Bonn told Bloomberg BNA. The impact was “enormous” and “immediate,” he said, triggering a nearly dollar-for-dollar drop in gross sales relative to the 10 percent tax.
“That's what's occurred across my industry, undermining the cash flow of businesses,” Bonn said. “So if you're a company doing less than 10 percent in net income, you likely went right into the red and at that point faced a struggle as to whether or not you could continue to fund your company.”
The number of tanning salons has dropped in half since the tax took effect almost five years ago, on July 1, 2010, with about 9,000 still open nationwide and doing business primarily as tanning bed operators compared to more than 18,000 before the tax. That has resulted in about 76,000 lost jobs, and neither the soft economy nor skin cancer fears were factors in the decline, said Joe Levy, a spokesman for Bonn's group.
“Almost all of it is directly due to the tax,” he told Bloomberg BNA. “I don't think there are many businesses that could withstand 10 percent taken off their top line.”
Nearly three-quarters of tanning salons are owned by women, so females have been disproportionately affected, said Holding, a second-term member new to the House Ways and Means Committee this year. And in addition to fairness factors, getting rid of the tan tax also makes sense because it hasn't worked as intended, he said.
“It doesn't generate the revenue it's supposed to,” Holding said.
The tax was forecast to collect $2.7 billion over a decade, or $270 million a year, according to a Congressional Budget Office estimate. But it has generated only about $377 million so far, averaging about $84 million per year along with about $11 million in annual collection costs.
The Holding legislation would repeal the tax prospectively, not retroactively, so taxes paid to date wouldn't be reimbursed.
Holding, whose bill reintroduced legislation floated in the past by others, also said the tan tax's impact on the industry would hurt the Small Business Administration, from which many tanning salon operators have secured loans.
“Not only is it not raising the revenue, but it's giving the SBA a haircut as well,” he said.
Holding and Bonn said totals are still being tabulated, but Bonn, who has closed salons since the tanning tax took effect and hasn't opened any new ones, can attest to at least one example in his own family.
His sister and brother-in-law saw their four tanning salons founder in the past couple of years and were forced to liquidate assets for pennies on the dollar, but they still owe the SBA, Bonn said. The couple—now in their mid-60s—put up their home as loan collateral but might lose it, he said.
That represents the real-world impact of the tanning tax, Bonn said, labeling it bad policy that didn't receive proper vetting before being added to the ACA about a week before passage, after cosmetic surgery advocates lobbied to get a tax on their procedures stripped out.
Bonn expects a companion bill to soon emerge in the Senate, and said he feels optimistic about gaining traction this year now that the congressional logjam of recent years appears to have broken a bit.
In the meantime, Bonn and other tanning salon operators will keep paying the tanning tax, and the medical device tax, too, since tanning booths are regulated by the Food and Drug Administration and classified as medical devices.
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Text of H.R. 2698 is in TaxCore.
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