Monday, June 24, 2013

Revisions to the Indoor Tanning Services Excise Tax

The excise tax for indoor tanning services has been around since 2010 as part of the Patient Protection and Affordable Care Act. This tax is the government’s way of trying to get you to stop using indoor tanning services, since using them may cause skin cancer.

This is an example of the U.S. government again enacting legislation in an attempt to influence the choices we make. They learned from Prohibition that outlawing an activity often has little effect on our choices so they opted for the next best thing—they taxed it.

The Internal Revenue Service has revised and finalized the regulations for the 10% excise tax on Indoor Tanning Services (ITS) imposed by this legislation. The temporary regulations, effective July 1, 2010, were revised by the 2013 final version. The final regulations are effective as of June 11, 2013; however, there could be additional revisions in the future.

Some of the 2010 temporary regulations were retained while others were revised or superseded by the 2013 final regulations. Following is a summary of some of the more significant items that changed and those that have stayed the same.

Qualified Physical Fitness Facilities (QPFF)

1. Certain QPFFs, with membership fees that include access to indoor tanning facilities, were exempted from the excise tax by the 2010 regulations even though the QPFFs provide basically the same indoor tanning services as non QPFFs.

2. The 2010 regulations limit the definition of a QPFF to a business that does not charge separately for its ITS, offer ITS to the general public, or offer different membership rates based on access to the ITS. If the business meets all three conditions it is exempted from the tax.

3. The 2013 regulations maintained this exemption despite complaints that the exemption creates an unfair competitive advantage for exempt QPFFs.

Free or Discounted Indoor Tanning Services (ITS)

1. The final 2013 regulations specify that the tax only applies if an amount is paid for ITS.

2. If services are provided at a reduced rate, the tax applies to the amount actually charged for the tanning services.

3. The 2013 regulations specify that the tax does not apply to ITS received for redemption of “bonus points” from a loyalty or similar program.

4. For promotions that include a “free” tan with the purchase of a specific number of tans the purchased tans are considered as a reduction to the price of all of the tans rather than a package of purchased tans at full price along with a “free” tan. The tax is applied to the purchase of the package of tans rather than the redemption of the additional tan.

Bundled Services

1. The 2010 regulations provided a formula to determine the amount reasonably attributable to ITS included in a bundle of services. The 2013 regulations leave the bundled rules intact.

2. If the ITS are bundled with other goods and services, the provider must manually calculate the amount of the payment for the bundled services that is attributable to ITS.

3. The final 2013 regulations authorize the Treasury Department and the IRS to issue future guidance to identify additional options for making this calculation.

Gift Cards

1. An undesignated payment card is defined by the 2010 temporary regulations as an item that can be redeemed for goods or services that may or may not include ITS.

2. The 2010 temporary regulations imposed an excise tax only when the card is redeemed for ITS, not when it is purchased. It was pointed out that a provider can only collect the tax when the card is purchased not when it is redeemed for ITS.

3. The 2013 regulations do not change the 2010 requirements however, they authorize the Treasury Department and the IRS to issue future guidance with respect to undesignated payment cards.

4. As required by the 2010 temporary regulations the excise tax must be reported and paid quarterly on Form 720 “Quarterly Federal Excise Tax Return.”

Membership and Enrollment Fees

1. The 2013 final regulations clarify that the excise tax on ITS is imposed on amounts paid for monthly membership and enrollment fees to a provider of ITS, other than a qualified QPFF, even if the member does not use any ITS’s during the period to which the fees relate.

2. Some providers charge a fee that allows the member to skip one or more months of membership dues without being charged an enrollment fee when they restart their monthly membership. Amounts paid to temporarily suspend a periodic membership program are considered amounts paid for ITS and are subject to the excise tax.

The government has taxed alcohol, cigarettes and now indoor tanning services to try to legislate good health practices. I don’t think that they have been very successful with either alcohol or cigarettes and they probably won’t be very successful with indoor tanning services either. What do you think?

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