The IRS issued final regulations on the 10% excise tax that has been in effect for amounts paid for indoor tanning services since July 1, 2010 (T.D. 9621). The regulations, which apply to amounts paid on or after June 11, 2013, finalize proposed rules issued in 2010 when the tax first became effective and withdraw the temporary regulations issued at the same time (T.D. 9486; REG-112841-10). The final rules differ slightly from the proposed rules.
The regulations provide that “amount paid” includes all amounts paid to a tanning services provider for indoor tanning services, including any amount paid by insurance. Tans that are received as redemptions of “bonus points” in a loyalty program or “free” tans received after having a certain number of tans are not subject to the tax. Because many tanning salons sell other goods and services in addition to tanning services, the regulations provide rules for determining the tax when the provider charges for various goods and services in addition to the tanning services.
Tanning providers do not have to collect the tax on other goods and services if the charges are separable, do not exceed the fair market value of the other goods and services, and are shown in exact amounts in the records pertaining to the indoor tanning services charge. If the charges are not separately stated and the total amount paid includes indoor tanning services, the tax is based on the portion of the amount paid that can be reasonably attributed to the tanning services. Because commenters on the proposed regulations objected to the requirement to apportion these amounts, noting that no commercially available software can calculate these amounts separately, the final regulations authorize the IRS to issue future guidance on making this determination and request comments on other reasonable methods for apportioning nonseparately stated charges.
Liability for the tax arises at the time payment is made for the services, but in some cases (such as when a gift card is purchased that may be used for other purposes as well as for tanning), it may not be possible at the time of purchase to determine if the payment is for tanning services. The tax is not imposed until the card is actually used for these purposes. A number of commenters objected to this rule, noting that it would be easier to collect the tax when the card is purchased and estimate what portion will be used for taxable services. The final regulations do not change this rule, but the IRS stated in the preamble to the regulations that it welcomes comments on when the tax should be collected on undesignated gift cards, and the regulations authorize the IRS to issue further guidance on the topic.
The regulations carve out an exception for “qualified physical fitness facilities” that include access to indoor tanning facilities as part of a membership fee. The IRS has determined that where that access is incidental to a physical fitness facility’s predominant business, the amount attributable to the indoor tanning access is difficult to determine. Thus, amounts paid to qualified physical fitness facilities are not subject to the 10% tax. The regulations narrowly define “qualified physical fitness facility” to exclude businesses that predominantly engage in indoor tanning or other cosmetic services. Despite a number of commenters’ objections to this exception, the IRS retained these rules intact from the proposed regulations.
The definition of indoor tanning service does not include phototherapy services provided by a licensed medical professional. The regulations define “phototherapy service” and specify that the service must be performed by and on the premises of a licensed medical professional to qualify for the tax exemption.
Collection and Payment Procedures
Providers of tanning services must collect the tax and pay it quarterly to the government. If the tax is not separately stated, the amount paid is presumed to include the tax. If the payer does not pay the tax, the service provider must pay it.
The tanning services provider reports the tax on Form 720, Quarterly Federal Excise Tax Return. Full payment of the tax is due when the quarterly Form 720 is timely filed; the regulations do not require semimonthly tax deposits.