August 15 is National Relaxation Day. It seems we all could stand a reminder to “slow down, unwind and relax.” Relaxation is a state of mind and body that some attain by doing nothing and others actively pursue. There’s an almost overwhelming array of options to help us relax these days. And many come at a cost.
Whenever money changes hands — however relaxed — you can bet the taxman sits up and takes notice.
Those of us in search of a highly relaxed state may not like paying tax, but at least all we have to do is pay it when it applies. Businesses that offer such services don’t have that luxury: They need to charge tax on goods and services that are taxable but not on those that are exempt, and they need to get it right. The thing is, taxability isn’t always clear. There’s nothing relaxing about that.
If you can hold it, it’s probably taxable
Washington, D.C. and the 45 states with sales tax apply it to the transfer of tangible personal property, such as bath salts, lavender eye pillows, and yoga mats. Unless a specific exemption applies, any thing sold to help people relax is taxable. Alcohol, perhaps the ultimate relaxer, is usually subject to additional taxes as well.
The taxability of services is much harder to pin down, and it’s in flux. As sales tax revenue lags, states are eyeing tax revenue from sales of memberships and other services like manicures, massages, and recreation. In this case, instead of relaxing, service providers should be vigilant.
If it’s a service, it’s anyone’s guess
Since there are countless ways to relax, I’ll focus on two of my favorite: massage and yoga.
It could be the ultimate relaxation experience … until you start thinking about the sales tax.
In New York, state sales tax applies to massages when they’re sold by gymnasiums, health salons, and weight control salons. However, if these services are offered by chiropractors, physiotherapists, podiatrists, and other health care professionals, they’re exempt. In the Big Apple, massage services provided by physicians, etc., for medical purposes are also exempt from local sales tax, but massage services provided by anyone else, including a licensed massage therapist, are subject to the local New York City sales tax.
That’s different from Texas, where massages provided by licensed massage therapists are exempt but “massage services performed by massage parlors” are taxable. (See Texas Comptroller Publication 96-259).
Connecticut also exempts massage and reflexology services provided by a licensed massage therapist, but taxes those offered by someone “other than a licensed massage therapist.” On the other hand, Reiki is strictly considered a spa service, and spa services became subject to Connecticut sales tax on July 1, 2011.
My home state of Washington makes a distinction between yoga classes provided at an “athletic or fitness facility,” and those provided at a yoga studio. The former are taxable, the latter exempt. Washington linked the law to location after confusion arose when the Department of Revenue decided some yoga studios were offering taxable yoga classes because they were “for exercise,” but other yoga studios were offering exempt classes because they were “primarily instructional.”
In the other Washington, (D.C.) yoga is taxable whether it’s offered by a yoga studio or a fitness center such as a health club. However, if you hire a personal trainer to teach you yoga at either a fitness center or your home, those charges are exempt.
Like spa services, “yoga instruction provided at a yoga studio … or at a health and athletic club” became subject to sales tax in Connecticut in 2011. (Would yoga in the park offered by a self-employed yoga instructor be exempt?) However, when yoga services are provided by municipalities, they’re exempt.
Yoga is not an enumerated taxable service in New York. However, tax applies to “every sale of services by weight control salons, health salons, gymnasiums, Turkish and sauna bath and similar establishments and every charge for the use of such facilities,” so if yoga is sold by a business that qualifies as one of these, it’s taxable.
As you can imagine, this policy has raised many questions. In 2012, the New York State Department of Taxation and Finance determined that yoga classes sold by a facility that “only offers instruction in yoga” [emphasis mine] were not taxable because “instruction in yoga is not an exercise activity because yoga generally includes within its teachings not simply physical exercise, but activities such as meditation, spiritual chanting, breathing techniques, and relaxation skills.”
Definitely not relaxing.
Perhaps it’s best to avoid thinking about sales tax on August 15 — it’ll only make you tense on a day that should be devoted to relaxation.
In fact, maybe it’s best to take the “do nothing” route and leave sales tax to us.