On June 10, 2013, the Treasury Department and the Internal Revenue Service ("IRS") issued final regulations regarding the excise tax imposed on indoor tanning services under section 5000(b) of the Internal Revenue Code of 1986, as amended (the "Code"). Section 5000(b) was added to the Code by the Patient Protection and Affordable Care Act of 2010, as amended (the health care reform legislation). The regulations, effective June 11, 2013, provide guidance on the 10 percent tax that has been in effect for amounts paid for indoor tanning services since July 1, 2010.
The regulations provide that the 10 percent tax is imposed on the total amount paid for tanning services and is paid by the consumer of the tanning services. However, if the tax is not paid by the consumer, the provider of the service is liable for the tax. If a provider bundles indoor tanning services with other goods and services, such as protective eyewear, the regulations provide rules for determining the portion of the bundled fee that is reasonably attributable to the tanning services. However, if the charges are separable, do not exceed the fair market value of other goods and services, and are shown in exact amounts in the records, then providers do not have to collect the tax on those other goods and services. Also, if the consumer pays for the tanning services using a gift certificate that is redeemable for a variety of services that may or may not include tanning, the tax is not imposed until the card is redeemed specifically to pay for indoor tanning services.
An important exception regarding qualified physical fitness facilities is also included in the final regulations. A qualified physical fitness facility is defined as a facility whose main business is to provide exercise equipment and services, but does not charge separately for tanning services, offer tanning services to the general public, or offer different membership rates based on access to tanning services. Despite substantial criticism from commentators, the IRS determined that it would be too difficult and burdensome for the physical fitness facilities to determine the amount paid to them that is attributable to indoor tanning services. Therefore, all amounts paid to the qualified physical fitness facility are not subject to the 10 percent tax. Also exempted from the tax are free tans received as part of a loyalty program.
The excise tax must be reported by the indoor tanning service provider on Form 720, Quarterly Federal Excise Tax Return. Form 720 is filed quarterly, such that the first return to report the indoor tanning services tax was due on October 31, 2010 for the third quarter period including July, August, and September 2010. Service providers who did not begin paying the tax at that time should now file a Form 720 for each quarter missed and pay the associated tax. Failing to do so may subject the provider to penalties and accrued interest on unpaid balances.
Fraser Stryker is a leader in tax and employee benefits law. Attorneys in the Firm's Taxation and Employee Benefits Practice Groups advise individuals, business entities, governments, and nonprofit/tax-exempt organizations on a wide variety of tax and employee benefits matters and transactions. Attorneys on the Firm's Patient Protection and Affordable Care Act & Health Care Reform Response Team advise businesses, political subdivisions and other governmental entities, health care organizations, and tax-exempt entities on all aspects of health care reform compliance. For more information regarding the excise tax on indoor tanning services, please contact or Nicole R. Konen.
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