With July right around the corner, Early & Smith LLC has translated the IRS Regulations concerning the tanning tax into an easy-to-understand reference guide for the indoor tanning community. If you have any additional questions, you may contact the firm at 888.885.5552.
The Internal Revenue Service released “final and temporary regulations” last week in regards to the indoor tanning services excise tax imposed by the Patient Protection and Affordable Care Act. To make these regulations more easily understandable, this document will address the most commonly asked questions regarding these new requirements for the salon owner.
Q: When do I collect the tax?
A: Salon owners are required to collect this tax beginning July 1, 2010. The tax is to be collected by the salon owner when an amount is paid for indoor tanning services.
Q: How much is the tax?
A: The tax is equal to 10 percent of the amount paid for indoor tanning services ONLY.
Note: Indoor tanning services are defined as any service that uses any electronic product that uses one or more ultraviolet lamps and intended for the irradiation of an individual, with wavelengths in air between 200 and 400 nanometers, to induce skin tanning (UV tanning beds). Some services, such as “spray on tans,” while technically a tanning service, are not subject to the tax.
Q: What if I bundle services in a monthly membership fee?
A: Again, you only collect tax on the amount that is paid for indoor tanning services. If you don't separately list what is purchased in a bundle, then you collect tax based on the portion paid that is “reasonably attributable” to indoor tanning services.
Note: The IRS is basing this on rulings that already exist in a different industry with a similar “package” scenario. So make sure you are careful in determining your “reasonably attributable” amounts and document them.
Q: I sell gift cards and gift certificates for indoor tanning services. How do I collect tax on those?
A: If you sell a gift card/certificate for the purchase of goods and services at your salon to be redeemed at a later date, you DO NOT collect the 10 percent tanning tax at the time the card/certificate is sold. Only when that gift card/certificate is redeemed to purchase indoor tanning services is there a tax collected. And remember, for tanning tax purposes, the tax collected is 10 percent of the amount “reasonably attributable” to indoor tanning services.
Q: Are Fitness Centers and gyms exempt from this tax?
A: Not necessarily. The regulations specifically address what they call Qualified Physical Fitness Facilities (QPFF). The IRS determined that memberships paid to a QPFF are not a payment for indoor tanning services. To be a QPFF, your predominant business or activity is to serve as a physical fitness facility – and as a QPFF, you can't charge separately for indoor tanning services, offer such services to the public or offer different membership fees based on access to tanning beds. If a potential QPFF does any of the above, then they are subject to collect and remit the 10 percent tanning tax, too!
Q: Once I collect this tax, what do I do?
A: The tanning tax is to be reported and deposited on a quarterly basis. This means that in October, you will need to file a form 720 to the IRS and make your tax deposit. www.720filer.com is a great tool to automate this compliance requirement. The site will file your form 720 electronically and make the tax payments right from your computer. You will receive an electronic acknowledgment to let you know the return and the payment was filed successfully. Some salon owners may have more than one location. If you have a separate tax identification number for each location, then you have to file a form 720 for each.
Per our review of the regulations, be aware that salon owners are collecting taxes for the United States and any person who willfully fails to collect and pay over the tax may be subject to penalty. If you have any questions that have not been addressed here, please feel free to contact Early & Smith LLC at 888.885.5552 or e-mail us at info@earlysmith.com. If you would like to make comments to the government in regard to these regulations you may do so by going to www.regulations.gov. Make sure to reference Document ID: IRS-2010-0013-0001. Comments are being received through September.
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