When President Obama signed the health care reform bill, it signaled the beginning of dozens of tax law changes. Some gradual tax increases are scheduled over the next few years, while others took affect immediately. Later this week, on July 1, the tanning tax will begin and like any new tax law it can be difficult for consumers and business owners to understand how the tax will be levied. To help those looking for more information on the topic, I have put together the following explanation of the tax and the accompanying IRS regulations.
Purpose of the Tax
Starting July 1, 2010 a 10% tax will be levied on indoor tanning salon services. Similarly to sales taxes, the tax will be collected by the business and forwarded to the federal government. The purpose of the tax is to raise money to fund health care reform; the tanning tax replaced a cosmetic surgery tax that was unwelcome by the American public.
A Sin Tax?
The American Academy of Dermatology Association (AADA) actually pitched the idea to Senate members as a way to discourage indoor tanning among the public. As such, many experts refer to the tanning tax as a sin tax, which is a type of tax that discourages certain behaviors among taxpayers. Taxes on cigarettes and alcohol are both common examples of sin taxes. Because of the heighten risk of getting skin cancer, Congress was quick to approve the tanning tax.
Study after study has reaffirmed the connection between frequent sun exposure and tanning with an increased risk of skin cancer. In addition to being a source of revenue, the government is hoping this will lead to fewer cases of melanoma, which is the most deadly of skin cancers. In fact, other states and local government agencies are also implementing restrictions on tanning for the same reason. New York is even considering an age limit on tanning salons that would require visitors to be at least 18 years old.
Many Americans consider a trip to the tanning salon a part of their regular routine, similarly to getting acrylic nails filled or a hair trim. A 10% price increase might not seem like that big of a deal to most Americans, but for consumers who visit the salon on a weekly basis, the tax will result in them paying a significant amount of money to the government.
Popular reality television show star Snooki spoke out against the new tax in the "Jersey Shore" preview, where she announced that she would no longer go tanning due to the tax. She even added, "McCain would never put a 10% tax on tanning.” However, critics were quick to point out that the tax had not yet been implemented when filming took pace. However, Senator John McCain did reply to Snooki by posting a message on his Twitter profile saying "u r right, I would never tax your tanning bed! Pres Obama's tax/spend policy is quite The Situation. but I do rec wearing sunscreen!"
Cost to Some Small Businesses
Since a majority of the nation’s tanning salons are individually owned and operated, many owners are calling the tax an attack on small businesses. They have even warned that the additional tax will lead to a direct loss of revenue and job losses. With all the attention the tanning tax has received in the media, salon owners are already running discounts and promotions to entice customers. In addition to getting customers in the door, these salons are also worried about following the complicated new tax guidelines.
7 Basic Rules
To read all of the tax implications of the tanning tax you can check out this IRS register page. However, I have gone through the legalese and identified seven basic rules you should know.
- The tax is to be paid by the paying customer, not necessarily the person receiving a tan, at the time of purchase.
- If the customer purchases goods other than a tan, such as a lotion or bathing suit, the tax only applies to the price of a tanning service, not to the entire tab.
- If a tanning business owner offers bundle packages that include a tanning service, they are responsible for calculating the estimated price of a tan in the package to properly tax it.
- Payments made for tanning services on a gift card or certificates are still liable for the tanning tax.
- The taxes collected from customers by business owners must be recorded, and reported to the IRS in their quarterly tax payments.
- If the business owner or employee of the tanning establishment fails to collect the tax from a customer, the provider is then liable for the tax.
- Providers who own more than one tanning business must file a separate IRS Form 720, Federal Quarterly Tax Return for each establishment.
When the IRS published the official regulations on the tanning tax, they also took time to discuss exceptions to these new rules. According to the IRS, "indoor tanning service, as defined in section 5000B(b), does not include any phototherapy service provided by a licensed medical professional. The regulations define phototherapy service and clarify that such service must be performed by, and on the premises of, a licensed medical professional." Additionally, membership fees paid to a qualified physical fitness facility as defined by IRS regulations that offer tanning services; do not need to impose a tax.