10% Tax on Tanning Service Starts July 1

The Patient Protection and Affordable Care Act, included a new excise tax of 10% on fees charged for indoor tanning services.  If your business provides tanning services, you are very likely subject to the new tax which begins for payments received after June 30, 2010.

The IRS  issued regulations to clarify some questions about how the tax will be imposed.

Payment of the tax is due quarterly and should be reported on Form 720.  Form 720 is due on April 30, July 31, Oct 31 and Jan 31.  Since the tax begins effective with payments received on or after July 1, 2010, the first return will not be due until Oct. 31.

The tax is based on when payment for tanning services are received.  If a customer pays upfront for a series of tanning sessions, the tax is due in the quarter when the payment is received, not when the service is performed.  If a customer purchases a gift card for tanning services, the tax is calculated when payment is received from the customer.  Some gift cards may be exchanged for goods and services other than tanning services, in that case the tax will be calculated when the gift card or certificate is redeemed, assuming it is redeemed for tanning services.

Qualified fitness facilities that include access to tanning services as part of their membership fee are not subject to the tax.  If the fitness facility charges an additional fee or membership charge for the tanning services, then it will become subject to the 10% tax.

If tanning services are included in a "bundled" set of services for a set fee, then a reasonable allocation of the fee to tanning services must be made.

The tax is added on to the fee charged for tanning services and should be paid by the person on whom the tanning service is performed.  If a tanning salon fails to charge the tax, it will still be liable for payment of the tax.

If you have questions about the new tanning tax you can read IRS Regulation IR-2010-73 or contact our office.