How did Texas apply the October 2, 1984 amusement-service tax to fitness-center memberships, including medically prescribed memberships and older contracts?

Plain-English summary

The Comptroller answered several questions about the new sales tax on physical-fitness-center services effective October 2, 1984.

• Medically prescribed memberships were not taxable. The statutory definition of taxable amusement services specifically excluded them. The fitness center had to keep the written prescriptions for auditors.
• Existing contracts were protected. Contracts or membership agreements covering periods that began before and continued beyond October 2 were not taxed until changed or renewed.
• Annual and monthly dues followed the contract period. Yearly periods beginning before October 2, and monthly payments under contracts beginning before that date, remained untaxed until change or renewal.
• Pre-effective-date payments were not taxed. Any customer payment made before October 2 for membership fees or dues was treated as a sale before the tax took effect, regardless of the period covered.
• One corporate permit number could cover all outlets. Each outlet still received a display permit showing the corporate number and its individual outlet number.

What this means for you

Fitness centers

The historical transition depended on when the contract period began, when it changed or renewed, and when payment was made.

Customers with medically prescribed memberships

The letter treated a medically prescribed membership as outside taxable amusement services, provided the written prescription was maintained in the seller's records.

Common questions

Q: Were medically prescribed memberships taxable?
A: No, but the seller had to retain the written prescription for audit.

Q: Were memberships beginning before October 2, 1984 taxed after that date?
A: Not until the contract or membership agreement was changed or renewed.

Q: Could one permit application cover a multi-outlet corporation?
A: Yes. One corporate permit number covered all outlets, with a permit displayed at each location.

Citations and references

The letter refers to the statutory definition of taxable amusement services but does not identify the statute by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8409L0591D13

Original ruling text

September 6, 1984

Dear **:

Thank you for your letter of August 24, 1984, regarding the taxation of
services rendered by physical fitness centers.

1. The home office may complete one sales tax permit application for the
   corporation which will cover all outlets. There will be one sales tax
   permit number assigned to your corporation. But there will be a permit
   issued for each outlet to display showing the permit number for the
   corporation as well as the individual outlet number.

2. Contracts or membership agreements covering periods beginning before,
   and extending beyond, October 2, 1984, are not subject to sales tax until
   they are changed or renewed.

3. Membership dues covering a yearly period beginning before October 2,
   1984, will not be subject to tax until they are changed or renewed.

4. Monthly payments made in relation to contracts covering periods
   beginning before October 2, 1984, and extending beyond October 2, 1984,
   are not subject to tax.

Also, since the sales tax on this service does not become effective until
October 2, and since all payments made by customers before October 2 for
membership fees or dues, regardless of the contract period covered by the
payment, are considered sales before the effective date of taxation, such
payments are not subject to tax.

Medically prescribed memberships are specifically excluded in the
statutory definition of taxable (amusement services and will therefore not
be subject to tax. Such written prescriptions should be maintained in your
records for review by our auditors.

This opinion is based upon the facts you presented. If there are additional
or different facts. this opinion may change.

Please feel free to contact me if you have additional questions. You may
write me, call toll free 1-800-252-5555 from anywhere in Texas or phone
512/475-1931.

Sincerely,

Miss Jeannon Kralj
Tax Policy Section
Tax Administration Division