Sales Tax on Health and Weight Loss Programs
By: Joshua D. Howell, Esq., Senior Manager, State & Local Tax
Many state revenue departments are hoping that the sales tax generated from gym memberships, online fitness memberships, training videos, and diet and weight loss programs will help get their state budgets in shape. Unfortunately, many businesses are not aware that they need to register to collect tax on these services.
Recently, over half of states with a sales tax imposed a tax on health club membership fees. However, with many people turning to outdoor group training sessions, online fitness and weight loss content, and other activities outside of a gym, it is important to understand that states are beginning to tax those fitness alternatives as well.
Examples of How States Tax Health and Weight Loss Programs
Below are just a few examples of states that provide specific sales taxes guidance on fitness or weight loss programs and memberships across the country:
The state imposes sales tax on commercial weight loss services, such as diet workshops. See Special Notice 2001(2), Miscellaneous Personal Services
As of July 1, 2018, the state imposes a sales and use tax on non-medical diet and weight reducing services. The state has not provided a significant amount of guidance on what services fall into this category, but you can imagine many popular weight loss programs are now subject to the state’s sales tax.
The state has published a Fact Sheet 124: Exercise Facilities and Health Clubs notifying taxpayers that charges for memberships to health clubs and exercise facilities are taxable. However, the fact sheet also explains that the following are not taxable when optional and separately stated from other taxable charges, such as a membership fee:
- aerobic, exercise, yoga or other class fees
- consultation fees for weight control or nutrition
- cosmetology, body wraps, and waxing
- day care
- personal trainer fees
The state also specifies in their guidance on Diet and Weight Loss Programs that the following services are not taxable:
- creating menu and exercise plans
- counseling individuals or a group
- monitoring weight and body measurements
However, Minnesota imposes sales tax on specified digital products such as digital audio works (sound recordings such as music or podcasts) and digital audio-visual works (videos). For more information see Minn. Dept. of Rev., Sales Tax Fact Sheet 177, Digital Products (updated Sept. 2018).
The state imposes sales tax on the use of an athletic or fitness facility. However, the sales tax is not imposed on charges to use facilities that exclusively provide yoga, tai chi, chi gong, or martial arts classes.
The Digital Dilemma
What happens when charges for otherwise nontaxable content (online fitness/training classes) are provided in the form of a digital product? This issue could be a tricky one in states such as Minnesota and Washington. A state that taxes digital products could tax fitness or weight loss videos (Minnesota) or yoga videos provided to subscribers online even though receiving the fitness, weight loss, or yoga instruction in person would not be taxable.
Currently over half of the states with a sales tax impose the tax on digital products, including video content and other digital content. Examining how your fitness and weight loss programs and content are delivered is critical to understand the taxability of these programs on a state-by-state basis.
Can Sales Tax Encourage Healthy Choices?
State and local jurisdictions use sales tax policies to influence healthier behavior. High taxes on cigarettes have long been in place and, more recently, several cities and states have implemented soda taxes to drive consumption away from high-sugar products and toward healthier options. But, alas, moving to healthier alternatives may now carry sales tax burdens as well.
We are here to keep up with the ever-changing sales tax laws and rates. If you have questions or would like guidance getting your sales tax processes in shape, contact your Cherry Bekaert advisor or Josh Howell.