Taxable and exempt fitness fees in Tennessee – Who’s fit to be taxed? – Wacky Tax Wednesday

If you’re in the business of helping folks get fit in Tennessee, there’s a good chance you’re required to charge sales tax for your services. Tennessee is one of several states that taxes many charges associated with physical fitness. However, other such charges are exempt.

Activities subject to Tennessee’s amusement tax (Tenn. Code Ann. § 67-6-212) include dues or fees to membership sports and recreation clubs (including any fees paid for the use of facilities or services rendered at a health spa or club or any similar facility or business), and charges for the privilege of entering or engaging in any kind of recreational activity (when no admission is charged spectators), such as tennis, racquetball, or handball courts.

The Tennessee Department of Revenue (DOR) explained back in 2015 that although personal training services are generally exempt from tax, they may be taxable if “offered as part of a gym or club membership.” Earlier this year, the DOR provided further clarification. I’m still confused.

Taxable vs. exempt fitness charges

Notice #18-09, Physical Fitness Facilities (June 2018) explains that sales tax applies (unless specifically exempt) to dues and fees paid to health clubs and similar facilities that offer exercise or other physical fitness conditioning. These include spas, sports clubs, and recreation clubs (e.g., country, golf, tennis, yacht clubs). See Tenn. Code Ann. § 67-6-212 and Sales Tax Rule 116 for more details.

Sales tax also applies to charges for services rendered at such facilities. Membership fees and per-class fees are taxable, for example, as are initiation fees and fitness equipment instruction fees, even if separately stated.

However, charges for “instruction only” in amusement or recreational activities are exempt from sales tax. For example, while the fee to play tennis is taxable, a charge for tennis lessons alone is not.

According to Notice #18-09, taxable and exempt fitness activities include the following and are broken down as follows:

Is that clear?

Sometimes charges must be separately stated to qualify for a sales tax exemption. Sales Tax Rule 122 explains: “If recreational activity not essential to or a part of the instruction is also provided, the entire charge shall be subject to tax unless charges for instruction are separately billed.” I wish the DOR had provided an example to illustrate that.

It takes perseverance to be physically fit: You have to carve out time to exercise and often you have to endure fatigue, discomfort, and even pain.

The pain associated with sales tax compliance is no less real; figuring out how Tennessee taxes physical fitness has certainly put me in a lather. Fortunately, for businesses, sales tax software automation can help.