10% Excise Tax on Indoor Tanning Services
Released on 6/10/10
With the new 10% tax on tanning services scheduled to take effect July 1, 2010, the Internal Revenue Service has distributed a Question and Answer Fact Sheet to help small businesses.
Q. Who is required to pay the new excise tax on tanning services?
A. The tax must be paid by persons paying for indoor tanning services after June 30, 2010.
Q. How and when is the tax collected?
A. The tanning service provider must collect the tax at the time the purchaser pays for the tanning services.
Q. Does the tax apply to all types of tanning services?
A. No, the tax does not cover phototherapy service provided for medical reasons, such as to treat wounds, dermatological conditions, seasonal effective disorder, neonatal jaundice and the like. The service must be provided by, and on the premises of, a licensed medical professional, such as a dermatologist, psychologist or registered nurse. For purposes of this tax, tanning services do not include "spray-on" tanning services.
Q. Must all businesses that provide indoor tanning services collect and remit the tax?
A. No, there is a limited exception for certain qualified physical fitness facilities that offer indoor tanning services. The tax does not have to be paid on membership fees for such facilities if access to tanning services is incidental to the fitness facility’s main business activity and the fitness facility does not sell tanning services to the general public, among other things.
The exception does not apply to a qualified physical fitness facility that charges separately for indoor tanning services, or otherwise offers different pricing options to members based on whether access to indoor tanning services is included.
Q. What happens if the purchaser of tanning services does not pay the tanning tax?
A. If the purchaser fails to pay the tax, the tanning service provider is liable for the tax.
Q. How soon must businesses begin reporting and paying the tax?
A. Beginning July 1, 2010, the tanning service provider must collect the tax at the time the purchaser pays for the tanning services. Tanning service providers will not begin to report and pay the tax immediately, but must do so on a quarterly basis. The first tax payment is due to the IRS on Oct. 31, 2010. Along with the payment of tax, tanning service providers must file IRS Form 720, Quarterly Federal Excise Tax Return. To file a Form 720, the tanning service provider must have an Employer Identification Number (EIN). The IRS is revising the Form 720 to add a line for the indoor tanning tax.
Q. How is the tax calculated if other goods and services are purchased along with tanning services?
A. If a payment covers charges for tanning services along with, for example, purchase of protective eyewear and use of towels, those other goods and services may be excluded from the tax if they are separately stated and the charges do not exceed the fair market value for those other goods and services. If the customer purchases bundled services and the charges are not separately stated, the tax applies to the portion of the payment that can reasonably be attributed to indoor tanning services.
Q. Why is this new tax being imposed?
A. The tax was included in the Affordable Care Act that was enacted in March.
Q. What is the IRS doing to make the public aware of this new excise tax?
A. The IRS will be implementing a communication and outreach strategy to ensure those affected are aware of the new tax.
