Indoor Tanning Taxes

The tanning tax was... stuck at the end of a 906-page health care reform bill.

Moreover, it was, indeed, intended to be a revenue-generating provision, though even at best, it was projected to generate less than one percent of the money needed to fund the legislation.

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[1] Scope of the Indoor Tanning Excise Tax

The tanning tax is a ten percent excise tax on indoor tanning services. [IRC § 5000B.] Indoor tanning service" means: "...a service employing any electronic product designed to incorporate 1 or more ultraviolet lamps and intended for the irradiation of an individual by ultraviolet radiation, with wavelengths in air between 200 and 400 nanometers, to induce skin tanning." [IRC § 5000B(b)(1).] The tax is paid quarterly, using the standard Form 720...

Promulgated guidance includes regulations and an Office of Chief Counsel Memorandum. The regulations address such topics as exempted phototherapy sessions, exempted fees paid to "qualified physical fitness facilities," and computation of the tax when a fee paid bundles taxable tanning services along with other, tax-free services. The Chief Counsel Memo addresses the question of "bonus bucks," when they are redeemable in part for indoor tanning services.

[2] Implementation of the Indoor Tanning Excise Tax

According to the Treasury Inspector General for Tax Administration (TIGTA), by the fall of 2011, the number of indoor tanning excise tax returns was lower than expected. Beginning with information from the Indoor Tanning Association, TIGTA assumed that there were approximately 25,000 businesses providing indoor tanning services in the spring of 2010. However, given the weak economy and the new tax, it expected that that number would go down. Even so, the 10,300 tanning excise tax returns actually generated for the first three quarters of 2011 suggested a surprisingly low response.

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[3] Legislative History of the Indoor Tanning Excise Tax

The tanning tax came to us courtesy of health care reform. With a projected significant increase in coverage, everyone knew that health care reform would be a very expensive proposition. The tanning tax was enacted as part of the effort to pay for it.

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Curiously, the tanning tax was projected to generate only about $2.7 billion, less than half of the projected revenue from the Botax [tax on discretionary cosmetic surgery] it replaced. In fact, the tanning tax has generated even less than that... [Treasury Inspector General for Tax Administration, Affordable Care Act: The Number of Taxpayers Filing Tanning Excise Tax Returns Is Lower than Expected, Ref No 2011-40-115 (Sept 22, 2011).]

The tanning tax was found on page 902 of the 906-page health reform bill. Also, in a curious bit of timing, the Botax was replaced with the tanning tax on late Saturday, December 19, 2009, and the American Medical Association came out for the first time in support of the Senate bill on Monday, December 21.

At the time, one of the largest manufacturers of indoor tanning machines in the world was located in Arkansas. Naturally, when the tanning tax was added to the Senate bill, they complained to their senator...

... Senator [Blanche] Lincoln assured her constituents that the tanning tax would never make it out of the Conference Committee.

But then Senator Kennedy died, and was replaced by a Republican... The only way forward would be for the House to pass the Senate bill. And that is what happened... [The tanning tax] stayed in the bill and was signed into law.

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LEXIS users can access the complete commentary HERE. Additional fees may apply. (Approx. 10 pages)

RELATED LINKS:  For more information on this topic, see:

• 2012-02 Lexis Federal Tax Journal Quarterly § 4.01

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