Is a bundled weight-loss program that includes an on-site fitness center, personal training, meal-plan coaching, and a motivational newsletter subject to Tennessee sales tax as health club dues?

Subject

Sales tax treatment of a bundled weight loss program with fitness center access.

Plain-English summary

The Tennessee Department of Revenue ruled that a company's weight-loss program — bundling meal-plan menus, personal training, an on-site fitness center, and a motivational newsletter — is subject to Tennessee sales tax as recreation club dues and fees, except the first $150 per member per year is exempt.

Tennessee taxes dues or fees paid for the use of facilities or services at a health club or similar facility. The Department applied a Tennessee Supreme Court precedent holding that a business qualifies as a "similar facility" to a health club if it offers what health clubs typically offer (there, tanning services). Here, the company ran an on-site fitness center with exercise classes and cardio/circuit equipment, plus personal training, weight-management coaching, and health newsletters — all delivered at the same location — so it counted as a health club/similar facility, and its membership fees (which members pay at the same rate whether or not they actually use the fitness center) were fees for facility use or services rendered there.

That made the program taxable, but a specific carve-out reduced the bill: the first $150 per member per year of membership dues (an exemption then scheduled to sunset July 1, 2009) is tax-free, and that $150 exemption applies per year even if a member prepays for two years up front — and it also covers the enrollment/first-consultation fee, since "membership dues" under the Department's Rule 116 includes initiation fees. A separate exemption for larger physical fitness facilities (15,000+ sq ft) didn't apply, since this location was only about 900 sq ft. The company's separately sold protein drinks and bars are taxed as ordinary tangible personal property (at the applicable food rate), unrelated to the membership analysis.

What this means for you

Fitness, wellness, and weight-loss program operators

Bundling fitness-facility access with coaching, meal plans, or educational content doesn't get you out of Tennessee's health-club dues tax — the Department will look at whether your business offers what a health club typically offers and whether services are delivered on-site, not at the specific program name or branding. Structure your enrollment/membership fee carefully: the first $150/member/year is exempt (while the exemption lasts), and it applies to the combined enrollment-plus-membership charge, not just a renamed "membership" line item.

Accountants and tax professionals

Watch the sunset date noted in the ruling itself — the $150 exemption under Tenn. Code Ann. § 67-6-330(a)(3) was scheduled to expire July 1, 2009, with repeal legislation already pending when this ruling issued, so confirm current status before relying on it for a live engagement. Also note the separate 15,000-square-foot large-facility exemption under § 67-6-330(a)(17)(A), which a small studio-sized location (here, 900 sq ft) can't reach.

Consumers/members of bundled fitness programs

Only the first $150 of what you pay per year toward membership/enrollment is tax-exempt; the remainder of program fees is taxable, and any food or supplement products you buy separately (protein drinks, bars) are taxed like any other retail food item.

Common questions

Q: Does bundling coaching and meal plans with gym access make the whole program non-taxable?
A: No. If the business qualifies as a health club or similar facility and delivers its services on-site, the whole bundled fee is taxed as recreation club dues, aside from the specific $150/year exemption.

Q: Does the $150 exemption apply once total, or every year?
A: Every year. If a member prepays for multiple years at once, the $150 exemption applies separately to each year's dues.

Q: Does the enrollment fee count toward the $150 exemption, or is it taxed on top?
A: It counts. Under Rule 116, membership dues include initiation/enrollment fees, so the enrollment fee is part of what the $150 per-member-per-year exemption offsets.

Q: Is a small studio-sized fitness location automatically exempt like a large gym?
A: No. Tennessee has a separate exemption for physical fitness facilities with at least 15,000 square feet dedicated to fitness use; a 900-square-foot space doesn't qualify.

Q: Does this ruling apply to my wellness or fitness business?
A: No. A Tennessee letter ruling binds the Department only for the specific taxpayer and facts addressed and cannot be relied on by others, and the underlying $150 exemption's status may have changed since 2008 — verify current law before relying on it.

Citations and references

Statutes, rules, and cases:

• Tenn. Code Ann. § 67-6-212(a)(1) (Supp. 2007) (tax on recreation/health club dues and fees)
• Tenn. Code Ann. § 67-6-330(a)(3) (2006) (first $150/member/year membership fee exemption, then scheduled to expire 7/1/2009)
• Tenn. Code Ann. § 67-6-330(a)(17)(A) (2006) (15,000 sq ft physical fitness facility exemption — not met by a 900 sq ft facility)
• TENN. COMP. R. & REGS. 1320-5-1-.116(1) ("Rule 116") (recreation club definition; membership dues include initiation fees)
• Tenn. Code Ann. § 67-6-202(a) (Supp. 2007); §§ 67-6-102(36), 67-6-228 (Supp. 2007) (tangible personal property/food tax rate for protein drinks and bars)
• P & P Enterprises, Inc. v. Celauro, 733 S.W.2d 878 (Tenn. 1987) (tanning facility qualifies as "similar facility" to a health club)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/08-22.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 08-22
WARNING
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This presentation of the ruling in a redacted form is
informational only. Rulings are made in response to particular facts presented and are not
intended necessarily as statements of Department policy.

SUBJECT
Application of the Tennessee sales and use tax to a weight loss program.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon
the Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation
or modification shall be effective retroactively unless the following conditions are met, in which
case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts involved in
the transaction;
(B) Facts that develop later must not be materially different from the facts upon
which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a prospective or
proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in relying upon
the ruling and a retroactive revocation of the ruling must inure to his detriment.
FACTS
[THE TAXPAYER] is a company that sells a weight loss program, which includes the following
components: a [NAME OF PROGRAM]; an exercise plan prepared by a [NAME - TRAINER];
use of a [FITNESS CENTER]; and a [NAME – PROGRAM]. Customers who purchase the
weight loss program become members of the Fitness Center. As part of the [NAME OF
PROGRAM], members are given menus designed by the Taxpayer’s registered dietician from
which to choose the members’ meals. Members go to the Fitness Center two to three times per
week for individual consultation, coaching, accountability and support.

The Fitness Center is located on-site at the same location as the office. The space allotted for the
Fitness Center is about 900 square feet and includes an exercise room for classes and cardio and
circuit training equipment. In addition, the Fitness Center is open to its members at any time the
business is open. Members can use the Fitness Center regardless of whether they utilize another
component of the weight loss program during the same visit. A [NAME – TRAINER] prepares
an exercise program for members individually and meets with members every two weeks to
reassess each member’s activity level. As part of the [NAME – PROGRAM], members receive
a weekly newsletter and monthly Life Success lessons with motivational tips, recipes and articles
about various health issues. No supplements are provided along with the purchase of the weight
loss program.
Members pay the same price whether or not they use the Fitness Center. The Taxpayer
encourages and expects members to use the Fitness Center. In some cases, however, members
live an hour away and do not use the Fitness Center regularly. Members pay an enrollment fee,
which covers the cost of the first consultation and the processing of the paperwork. Then,
members have the choice of paying the full price for a one-year or two-year membership, or they
can make monthly payments. There is no finance charge.
The Taxpayer also sells protein drinks and bars, but does not sell any other prepackaged foods.
QUESTION
Is the Taxpayer’s weight loss program subject to the Tennessee sales and use tax?
RULING
Yes, except for the first one hundred fifty dollars ($150) per member per year of membership
fees, which is exempt from the sales and use tax under Tenn. Code Ann. § 67-6-330(a)(3)
(2006).1
ANALYSIS
Retail sales in Tennessee are subject to sales and use tax under Tenn. Code Ann. § 67-6-101 et
seq. Specifically, Tenn. Code Ann. § 67-6-212(a)(1) (Supp. 2007) levies a tax on the sales price
of dues or fees to recreation clubs, including any fees paid for the use of facilities or services
rendered at a health club or any similar facility. Furthermore, TENN. COMP. R. & REGS. 1320-51-.116(1) (“Rule 116”) provides that recreational clubs shall include establishments primarily
engaged in operating health clubs and similar facilities featuring exercise and other active
physical fitness conditioning. However, under Tenn. Code Ann. § 67-6-330(a)(3) (2006), the
first one hundred fifty dollars ($150) per member per year of membership dues or fees of a
recreation club is exempt from the sales tax on dues or fees imposed by Tenn. Code Ann. § 67-6-

1

Note that the exemption for the first one hundred fifty dollars ($150) per member per year of membership fees is
scheduled to expire on July 1, 2009. In addition, legislation is pending to repeal the exemption. For updates, go to
the Department’s website at www.state.tn.us/revenue/tntaxes/salesanduse.htm.

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212, and if more than one year’s dues are paid in advance, the one hundred fifty dollar ($150)
exemption shall be applied to each year’s dues or fees.2
Accordingly, the Taxpayer’s weight loss program is subject to the sales and use tax under Tenn.
Code Ann. § 67-6-212(a)(1) (Supp. 2007) if the following requirements are met: (1) the
Taxpayer is a health club or similar facility featuring exercise and other active physical fitness
conditioning; and (2) the fees paid are for the use of facilities or services rendered at a health
club or similar facility.
The Taxpayer’s weight loss program is taxable under Tenn. Code Ann. § 67-6-212(a)(1) (Supp.
2007) as fees paid for the use of facilities or services rendered at a health club or similar facility.
The Taxpayer is a health club or similar facility featuring exercise and active physical fitness
conditioning under Tenn. Code Ann. § 67-6-212(a)(1) (Supp. 2007). The Tennessee Supreme
Court held that a business providing tanning services or tanning beds to customers for a charge
qualifies as a “similar facility” to a health club because “health spas or clubs include tanning
services and tanning beds among those services and equipment typically provided.” P & P
Enterprises, Inc. v. Celauro, 733 S.W.2d 878, 879 (1987) (quoting the trial court’s findings).
Based on the rationale of the Tennessee Supreme Court in P & P Enterprises, the Taxpayer
qualifies as a health club, thus satisfying the first requirement, because health clubs typically
offer what the Taxpayer’s weight loss program provides, namely, use of a fitness center
providing exercise classes and cardio and circuit training equipment and related services, such as
weight management programs, personal trainers with exercise plans, and newsletters on healthrelated issues. Id. Furthermore, the fees paid for the weight loss program fall within the scope
of Tenn. Code Ann. § 67-6-212(a)(1) (Supp. 2007) because the fees are for the use of facilities
(i.e. the Fitness Center) or services rendered (i.e. the Weight Management Program, Exercise
plan, and Life Success newsletter and lessons) (emphasis added). None of the services are
provided off-site or at a location separate from where the Fitness Center is located, thus
satisfying the second requirement.
Accordingly, the Taxpayer is a health club or similar facility featuring exercising and active
physical fitness conditioning, and the fees paid are for use of its facilities or services rendered at
the facility.
Therefore, the sale of the Taxpayer’s weight loss program is subject to sales and use tax as fees
paid for the use of facilities or services rendered at a health club or similar facility. However,
under Tenn. Code Ann. § 67-6-330(a)(3) (2006), the first one hundred fifty dollars ($150) per
member per annum of membership dues or fees of a recreation club is exempt from the sales tax
on dues or fees imposed by Tenn. Code Ann. § 67-6-212. If more than one year’s dues are paid
in advance, the one hundred fifty dollar ($150) exemption shall be applied to each year’s dues or
fees. Accordingly, the first one hundred fifty dollars ($150) each member pays for one year’s
membership to the weight loss program shall be exempt from the sales and use tax. However,
2

Tenn. Code Ann. § 67-6-330(a)(17)(A) (2006) provides an exemption for a physical fitness facility that meets
several specific requirements, including the requirement in subdivision (iv) to have at least fifteen thousand (15,000)
square feet in use for physical fitness purposes. Because the Taxpayer stated that only 900 square feet is provided
for physical fitness purposes, this exemption is not available to the Taxpayer, and the additional requirements to
meet the exemption do not need to be discussed.

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under Rule 116,3 membership fees include the Taxpayer’s enrollment fee, so the enrollment fee
is included in the application of the one hundred fifty dollar ($150) exemption provided under
Tenn. Code Ann. § 67-6-330(a)(3) (2006). Note that the exemption for the first one hundred
fifty dollars ($150) per year per member of membership fees is scheduled to expire on July 1,
2009. In addition, legislation is pending to repeal the exemption. For updates, go to the
Department’s website at www.state.tn.us/revenue/tntaxes/salesanduse.htm.
Note that, although not included in the purchase of the weight loss program, the Taxpayer also
sells protein drinks and bars. Tenn. Code Ann. § 67-6-202(a) (Supp. 2007) levies a tax on the
sale at retail of tangible personal property, including protein drinks and bars. Therefore, the sale
of protein drinks and bars is subject to the sales and use tax.4
CONCLUSION
The Taxpayer’s weight loss program is taxable under Tenn. Code Ann. § 67-6-212(a)(1) (Supp.
2007) as fees paid for the use of facilities or services rendered at a health club or similar facility
because the Taxpayer is a health club or similar facility, and the fees paid for the weight loss
program are for the use of its facilities or services rendered at the facility.

Rachel Wheeler
Tax Counsel

APPROVED:

Reagan Farr
Commissioner of Revenue

DATE:

3-12-08

3

Rule 116(3) provides that “[m]embership dues or fees shall include initiation fees… and any other fees required for
membership.”
4
Note that food is taxed at a rate of 5.5% of the sales price, a lower rate than the tax rate for tangible personal
property, and what qualifies as food depends on its definition. See Tenn. Code Ann. §§ 67-6-102(36) and 67-6-228
(Supp. 2007). For more information, see Tennessee Department of Revenue Notice #07-14, available on the
Department’s website www.state.tn.us/revenue.

4