Clubs and memberships have been a staple for decades, but with the advent of online sales, the question of sales tax on memberships and dues has become more complicated. This is especially true for ecommerce platforms that offer diverse memberships with exclusive benefits. In this blog, we'll explore the complexities of sales tax on two popular online membership types: health and fitness clubs and retail memberships.
Selling health and fitness club memberships online can be a labyrinth of sales tax regulations. Each state has its own nuances, adding an extra layer of complexity for businesses operating nationwide. For instance:
Texas: Memberships in health and fitness clubs are taxable as amusement services unless purchased under a written prescription for health maintenance. Each membership renewal requires a new prescription.
Missouri: The taxability of club memberships depends on the benefits members receive. Voting rights, even tied to initiation fees, may not exempt the membership from sales tax.
New York: State and local sales taxes are imposed on dues and membership fees for athletic clubs, but health and fitness facilities' memberships are exempt, provided they offer access to exercise equipment.
South Carolina: Membership fees for for-profit gyms can be exempt if specific facilities like aerobics, weightlifting, and swimming pools are available. However, adding basketball courts may trigger sales tax.
Alaska: Ongoing discussions point towards taxing gym memberships as a service rather than goods.
The International Health, Racquet & Sportsclub Association (IHRSA) actively contests sales tax on fitness and health club memberships, emphasizing the importance of encouraging physical activity.
The taxability of retail memberships varies widely by state. For example:
Massachusetts: Membership fees for admission to "discount" department stores, retail outlets, and wholesale clubs are not subject to sales tax.
California: Membership fees related to the anticipated retail sale of tangible personal property may be subject to sales tax, especially if the retailer sells products exclusively to members.
South Carolina recently audited Books-A-Million, a retail bookstore, discovering no sales tax was charged on their annual membership, “The Millionaire's Club” of $25. The state imposed a hefty assessment for unpaid sales tax, emphasizing that intangible memberships can be taxable if their value originates from the sale of taxable goods.