Getting Fit? Connecticut Sales Tax Hits the Gym
- Sales Tax
- March 16, 2016 | Stephanie Faris
Fitness clubs and gyms stay busy throughout the year as members work hard to get and stay in shape. Memberships can be expensive, though, with monthly fees averaging between $40-$50 per month. When enrollment fees are included, customers can pay as much as $800 a year.
For Connecticut residents, state and local sales taxes are added onto those monthly fees. However, some services provided by health facilities in Connecticut are not subject to sales tax, including rentals of spaces like tennis courts or event rooms. If a fitness center rents space for birthday parties, for instance, that facility can forego sales tax charges, but some of the services and products sold during the party may be taxable.
Here are a few things fitness facilities should consider when calculating sales tax on payments.
In Connecticut, taxability is closely tied to the classification of the facility. Businesses defined as “health and athletic clubs” are taxable and are defined as facilities with workout equipment and exercise classes, as well as gymnasiums, slenderizing salons, and health fitness spas. Those businesses are taxable whether members pay a membership fee or purchase services as they use them.
Nontaxable facilities in Connecticut are businesses classified as “sports and recreation clubs,” which include beach clubs, boating clubs, country clubs, and sporting clubs for golf, hockey, racquetball, tennis, soccer, swimming, and yachting.
Some facilities serve multiple purposes for community members. A sporting facility could, for instance, have tennis clubs, exercise classes, workout equipment, and swimming pools. When a customer’s purchase contains a combination of taxable and nontaxable services, the facility is responsible by law for separating those charges out. If the charges aren’t separately stated, the state will presume that the entire purchase should have been taxed. This includes monthly fees, where one fee grants access to a combination of taxable and nontaxable services.
Nonprofit organizations in Connecticut are exempt from charging sales tax on memberships and other purchases at their facilities. This includes churches, which often have gyms, and the YMCA, which is a popular recreational facility in many of the state’s communities. The organization must have 501(c)(3) status as defined by the Internal Revenue Service to qualify.
Many communities provide civic centers to their residents that include workout facilities, exercise classes, and swimming areas. Connecticut law exempts services provided by Connecticut municipalities from sales tax.
Some facilities provide personal trainers and other fitness instructors at an extra charge to members. Whether those providers are employees or independent contractors, as long as the club is paying the trainer for services, that club is responsible for making sure sales tax is collected on every payment for those services.
If an independent contractor collects payment separately from the club, that contractor is responsible for registering with the state and submitting required taxes on all payments collected. This applies whether the contractor works with clients at a fitness facility or in their homes. Trainers who run their own fitness businesses in a leased or owned space are considered to be operating a health and athletic club and are required to pay sales tax.
Connecticut’s many fitness facilities must separate out which services are subject to sales tax and which can be provided tax-free. By designating the type of facility they run and the types of services they provide, facilities can easily determine where sales tax applies.