LR 7765

Taxability of Various Types of Classes at a Gym

December 12, 2016

Dear Applicant:

     This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter received on October 19, 2016.

     The facts as presented in your letter ruling request are summarized as follows:

Applicant operates a fitness facility. Applicant charges its customers fees for its service offerings such as personal training, "foundations" personal training, group classes, open gym access, sports performance, and other instructional programs. These services are offered in a variety of packages: (a) personal training sessions; (b) "Foundations" personal training sessions; (c) drop-in fees for one group class; (d) package purchase of ten classes; (e) unlimited monthly group classes that include open gym access; (f) unlimited monthly group classes without open gym access; (g) monthly packages for two group classes per week; (h) unlimited monthly open gym access; (i) sports performance services; (j) package purchase of twelve sports performance classes; and (k) other instruction programs (e.g., Olympic lifting, speed training, mobility, kids functional movements, etc.). The fees for these service offerings are paid directly to Applicant, and Applicant currently collects and remits sales tax on the fees it collects.

The fitness facility is an emerging, sport-like program. It provides the opportunity to compete locally, regionally, and internationally. It is constantly varied functional movements performed at a high intensity. Learning proper technique is important because its movements are functional, and most people have never been formally taught its movements.

Applicant's personal training sessions are offered to individuals who need one-on-one, two-on-one, or three-on-one instruction. Applicant's instructor writes a customized program for the customer, teaches the program to the customer, supervises the entire session, and helps motivate the customer to assist the customer in achieving the customer's desired results.

Applicant's Foundations instruction classes are made up of four personal training sessions to teach specific movements. Many of these movements are unique to this emerging sport. The classes are necessary to provide clients with the knowledge to perform movements safely and correctly. The client also receives one month of unlimited classes for free while they are doing the Foundations sessions. The personal training sessions are charged at the normal personal training session rate less a $5.00 discount for purchasing the four sessions for Foundations in full. The unlimited classes are offered to help the customer feel more comfortable and begin using their knowledge in another instructional setting.

Classes are offered at several different times throughout the day. These classes are programmed by a Certified Strength and Conditioning Specialist and led by a certified and/or experienced instructor. Every day is different. The instructor leads the class through a warm up and a workout. Many times a strength or skill portion is also involved. The instructor will demonstrate the proper movements and oversee the class to make sure they are doing the movements properly and safely. Customers can purchase classes in a variety of ways. They can purchase one class as a drop-in, or they can purchase a ten-class punch card for ten classes. They can also purchase unlimited monthly classes, or they can purchase a monthly plan that allows two classes per week.

Open gym classes are provided to allow customers time to apply the information they have received in the other classes. Applicant has an instructor present for supervisory purposes and customers may ask for their assistance with technique to ensure they are performing the movements correctly and safely.

Sports performance is a program designed for middle school, high school, college, and professional athletes. Each athlete is initially tested to determine his or her skills and abilities. The program is designed to help him or her achieve desired results applicable to their sport (higher vertical jump, faster forty-yard dash sprint, stronger bench press, etc.). Each athlete is supervised by Applicant's instructor to ensure the program is working and the athlete is performing the movements and program correctly. The program may also be modified depending on the instructor's ongoing assessment of the athlete. The instructor teaches each athlete how to best perform the movement and how the athlete can achieve his or her desired results.

Other instruction classes offered by the Applicant vary but include Olympic lifting, kids' functional movements, mobility, running/speed training, and other specific skills. These classes are offered periodically and usually last for a specified period of time, such as four to six weeks. These classes are taught by a certified and/or experience coach. Olympic lifting consists of complex movements that require in-depth instruction in order to be performed efficiently. Clients are taught variations and techniques. Occasionally, expert instructors on the subjects are brought in to assist in teaching these movements.

ISSUE 1:

     What is the effective date of S.B. No. 1025 (2016), which excluded instructional classes from the sales tax imposed by Section 144.020.1(2), RSMo?

RESPONSE 1:

     The effective date of S.B. No. 1025 (2016), which excluded instructional classes from the sales tax imposed by Section 144.020.1(2), RSMo, is October 14, 2016.

     On September 14, 2016, both houses of the General Assembly overrode the Governor's veto of S.B. No. 1025 (2016). Section 21.250, RSMo, provides that unless the bill provides otherwise, it shall become effective thirty days after approval by the constitutional majorities in both houses of the General Assembly. S.B. No. 1025 (2016) does not provide an effective date. Therefore, S.B. No. 1025 (2016) is effective on October 14, 2016.

ISSUE 2:

     Are Applicant's charges for its various programs, other than its open gym classes, subject to sales tax?

RESPONSE 2:

     No. Applicant's charges for its various programs, other than its open gym classes, are not subject to sales tax.

     Section 144.020.1, RSMo, levies and imposes a sales tax "upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state." Subsection (2) of Section 144.020.1, RSMo, subjects to sales tax as a taxable service rendered at retail the amounts "paid for admission and seating accommodations, or fees paid to, or in any place of amusement, entertainment or recreation, games and athletic events, except amounts paid for any instructional class[.]" "Instructional class" is defined by Section 144.010.1(5), RSMo, as including "any class, lesson, or instruction intended or used for teaching[.]"

     The term "teaching" is not defined. "Absent statutory definition, words used in statutes are given their plain and ordinary meaning with help, as needed, from the dictionary." Am. Healthcare Mgmt., Inc. v. Dir. of Revenue, 984 S.W.2d 496, 498 (Mo. banc 1999).

     If used as a noun, the term teaching is a "gerund of techen to teach." Webster's Third New International Dictionary 2346 (1993). Teach is defined in relevant part as: "1 obs : SHOW, GUIDE, DIRECT 2 a : to cause to know a subject <all children are taught the three R's> <taught his son a trade>b : to cause to know how to do something: show how <my father is Ì´ing me to drive>. . . . 5 a : to direct, instruct, or train by precept., example, or experience." Webster's Third New International Dictionary 2346 (1993).

     Applicant's programs are all physical training and fitness classes. For all of Applicant's classes other than open gym classes, the facts provided indicate that Applicant's staff lead the activities and show, guide, or direct, i.e. teach, Applicant's clients. Therefore, Applicant's charges for all classes other than open gym classes are excluded from Section 144.020.1(2), RSMo, because they are amounts paid for instructional classes.

ISSUE 3:

     Are Applicant's charges for its open gym classes subject to sales tax?

RESPONSE 3:

     Yes. Applicant's charges for its open gym classes are subject to sales tax.

     See Response 2.

     Applicant's charges for its open gym classes are for individuals to apply the information received in other classes. Unlike other classes in which Applicant's staff lead all of these activities and show, guide, or direct, i.e. teach, Applicant's clients, the open gym classes are not for instruction. Applicant's staff is only there to supervise the customers. Therefore, the charges for open gym classes are subject to sales tax under Section 144.020.1(2), RSMo, because the amounts paid are not for instructional classes.

ISSUE 4:

     Are Applicant's charges for its packages that include open gym access subject to sales tax?

RESPONSE 4:

     Yes. Applicant's charges for its package that include open gym classes are subject to sales tax.

     See Response 2.

     Section 144.020.1, RSMo, imposes a tax "upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state." "Sale at retail" is defined by Section 144.010(10), RSMo, as "any transfer made by any person engaged in business . . . of the ownership of, or title to, tangible personal property to the purchaser, for use or consumption and not for resale in any form as tangible personal property, for a valuable consideration[.]" The term sale at retail is also "construed to embrace . . . [s]ales of admission tickets, cash admissions, charges and fees to or in places of amusement, entertainment and recreation, games and athletic events, except amounts paid for any instructional class[.]" The measure of the tax imposed by Section 144.020.1 is the gross receipts from such transactions. Section 144.021, RSMo. The term "Gross receipts" is defined by Section 144.010(3), RSMo, as "the total amount of the sale price of the sales at retail including any services . . . that are a part of such sales[.]"

     Applicant's charges for its packages include the taxable service of open classes and the non-taxable instructional classes. The non-taxable services are part of the sale of the taxable services and must be included in Applicant's gross receipts for purposes of the tax imposed by Section 144.020.1, RSMo. Therefore, Applicant's charges for its package that include open gym classes are subject to sales tax.

     This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change. For this reason, the interpretation set forth above should be reviewed on a regular basis. Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

     Should additional information be needed, please contact Managing Counsel Roger L. Freudenberg, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573-751-0961), or me.

Sincerely,

John Mollenkamp