The Anatomy of an Excise Tax: Indoor Tanning Services

By Sharp, Andrew D.; Venker, Cecilia C. | The CPA Journal, February 2011 | Go to article overview

The Anatomy of an Excise Tax: Indoor Tanning Services


Sharp, Andrew D., Venker, Cecilia C., The CPA Journal


In 2004, country music artist Kenny Chesney released the album When tin Sun Goes Down, featuring the hit single "Anything but Mine." The song contains the lyrics, "And I can feel the sting of summer on my skin." Beginning on July 1, 2010, indoor tanning salons and their customers probably felt the same way.

Following a protracted and contentious debate, the Patient Protection and Affordable Care Act (ACA) was passed by the U.S. Senate on December 24, 2009, approved by the U.S. House of Representatives on March 21, 2010, and enacted into law with President Obama's signature on March 23, 2010. One of the myriad provisions contained in the ACA is a new 10% excise tax on indoor tanning services, effective for services performed after June 30, 2010.

Excise Tax

An excise tax falls in the broad category of a transaction tax. The primary objective of an excise tax is to raise revenue. If demand for tanning services persists, the federal government stands to collect an estimated $2.5 billion in excise taxes from tanning salons during the next 10 years. Tanning session costs can range from $7 to $10 for 20 minutes in certain cities to $15 to $20 for 10 minutes in more expensive locations, plus the 10% excise tax, depending upon the establishment and geographic location.

A secondary objective of an excise tax can be to discourage certain behavior. It is possible the federal government is attempting to influence taxpayer behavior as part of this tanning tax on customers, hoping to dissuade consumers from the adverse health effects of spending too much time in a tanning bed or booth.

The impact of the new tax on owners and employees of tanning salons will unfold in time. One outcome may be the closing of some of these small businesses in the industry and the resulting unemployment of their workers. This could have a disproportionate effect on female business owners, as women own approximately two-thirds of U.S. tanning salons.

Originally, the ACA contained a 5% excise tax on cosmetic surgery as the bill was being drafted in Congress. This tax would have applied to injections and elective surgeries, such as breast implants. Expected to produce approximately $6 billion in tax revenue over 10 years, the tax was replaced with the tanning tax in the final bill.

Regulation 49.5000B-1T

On June 11, 2010, the IRS issued a temporary regulation providing guidance on applying the tanning tax. Regulation 49.5000B-1T sets forth details on the 10% excise tax on indoor tanning services imposed by the provisions of the ACA.

Taxable services. The new tax targets certain indoor tanning services of salons. It applies to services provided by electronic products designed for individual tanning purposes that utilize one or more ultraviolet lamps with wavelengths ranging from 200 to 400 nanometers. Tanning beds and booths are the equipment of choice.

Exempt services. Other sunless tanning alternatives include spray tans, topical tanning lotions, and creams. The excise tax does not apply to these indoor tanning services and products purchased at tanning salons.

Phototherapy services are exempt from the tax if provided by a licensed medical professional on the medical professional's premises. A phototherapy service exposes an individual to specific wavelengths of light for the treatment of dermatological conditions (e.g., acne), sleep disorders, psychiatric disorders (e.g., seasonal affective disorders), neonatal jaundice, wound healing, or other medical conditions determined by a licensed medical professional to be treatable by exposing an individual to specific wavelengths of light.

Protective eyewear. Generally, protective eyewear is exempt from the indoor tanning excise tax. However, the invoice must separately state the price of the protective eyewear from the price of the indoor tanning services purchased. In addition, the amount charged for the protective eyewear cannot exceed its fair market value. …

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