Membership fees to athletic clubs are typically subject to sales tax as amusement services. However, separately stated charges for workout classes are generally exempt as an instructional service. Recently, a Texas athletic club sold “VIP” memberships that provided access to workout classes as part of the membership but did not separately state the value of the classes. On audit, the athletic club bifurcated the portion of the membership fees attributable to classes, but the Comptroller’s office disallowed the taxpayer’s method because such bifurcation could only be applied on a prospective basis and not on a retrospective basis.
If you have any questions about how this development may impact sales tax in your state, contact your state and local tax professional for more information.