Is a health/athletic club's membership revenue subject to Texas sales tax, and does that change if the membership was purchased under a physician's written prescription?

Plain-English summary

A taxpayer operating "Company A Centers" — facilities offering both clinical services (physician-referred cardiac, pulmonary, or diabetes rehabilitation and testing) and wellness/corporate services (physicals, wellness screenings, exercise equipment, monitored by physicians, nurses, or exercise physiologists) asked the Comptroller which of its wellness/corporate revenue sources are subject to sales tax. The taxpayer noted that none of its clinical services are taxable because those clients are there under doctor referral for rehabilitation due to sickness-related ailments or treatment.

The Comptroller applied Tex. Tax Code Sec. 151.0028, which defines "amusement services" to include membership in a club providing recreational or sports facilities, but excludes health services if prescribed by a licensed practitioner of the healing arts for the primary purpose of health maintenance or improvement. Rule 3.298(g)(7) confirms that admission to what would otherwise be a taxable amusement activity is exempt if purchased under a written prescription of a licensed practitioner specifying the type of treatment needed, and a new prescription is required each time the membership is renewed. Rule 3.298(a)(2) separately exempts "nonamusement services" that are instructional in nature, such as sport or musical instruction.

Applying these rules line by line to the taxpayer's revenue categories, the Comptroller found clinical revenues, physician-performed or -supervised physicals/exercise tests, yoga, true one-on-one personal training, and massage at the health club to be nontaxable. Wellness memberships, screenings, sports medicine wellness, and guest visits are taxable unless paid for by an exempt entity or purchased under a qualifying physician prescription. Retail sales at the club are taxable outright.

What this means for you

Health club and gym operators

Don't assume a blanket taxable or exempt answer for your whole membership base — the taxability turns on how each revenue stream is documented and delivered. A general wellness membership is a taxable amusement service unless the specific member purchased it under a written prescription from a licensed practitioner of the healing arts (specifying the treatment needed), or an exempt entity is footing the bill. Track prescriptions per member and require a fresh prescription at each renewal, since a lapsed prescription reverts the membership to taxable.

Clinics and wellness centers billing both clinical and recreational services

Separate your billing between clinical services (physician-referred rehab/testing tied to a diagnosed condition) and general wellness/corporate offerings. Clinical, physician-referred rehabilitation and physician-performed or -supervised physicals/exercise tests are nontaxable; general membership, screenings, and guest visits default to taxable absent a qualifying prescription or exempt purchaser.

Personal trainers and instructors operating out of a health club

Instructional services can be nontaxable "nonamusement services" under Rule 3.298(a)(2), but only if structured correctly: personal training must be separately stated (a distinct fee or contract apart from the regular membership), involve genuine one-on-one training, and involve the trainer actively putting the client through the program rather than just designing a program or teaching equipment use. Yoga instruction and massage at a health club are treated as nontaxable as well.

Common questions

Q: Is a general health club or gym membership taxable in Texas?
A: Yes, as an amusement service, unless it is purchased and paid for by an exempt entity or purchased pursuant to a written prescription of a licensed practitioner of the healing arts specifying the treatment needed.

Q: Does a prescription need to be renewed?
A: Yes. If a membership privilege is purchased pursuant to a written prescription, a new prescription must be obtained each time the membership is renewed.

Q: Are physician-referred rehabilitation and testing services taxable?
A: No. Clinical revenues from testing and rehabilitation performed pursuant to a physician referral and written prescription are not taxable, nor are physicals and exercise tests performed or supervised by a physician.

Q: Is personal training at a gym taxable?
A: No, if it is nontaxable under Rule 3.298(a)(2)(B): the charge must be separately stated apart from the normal membership, involve genuine one-on-one training, and involve the trainer putting the client through the program rather than just designing it or teaching equipment use.

Q: What about yoga classes, massage, and guest visits at a health club?
A: Yoga is nontaxable under Rule 3.298(a)(2), and massage at a health club is nontaxable. Guest visits, however, are taxable unless paid for by an exempt entity or purchased under a qualifying written prescription.

Q: Are retail sales at the health club taxable?
A: Yes, retail sales are taxable.

Citations and references

• Tex. Tax Code Sec. 151.0028 ("Amusement Services" — definition and exclusion for prescribed health services)
• Rule 3.298(g)(7) — Amusement Services (exemption for admission purchased under written prescription of a licensed practitioner of the healing arts)
• Rule 3.298(a)(2) — Nonamusement services (instructional activities, e.g. sport or musical instruction)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9605L1413A12

Original ruling text

DATE: May 28, 1996

TO: R. C. Rodriguez, El Paso Audit, 2I90

FROM: Gilbert Zamora, Tax Policy

SUBJECT: Company A Services

Facts: Taxpayer has facilities that operate as a "Company A Centers." Company
A Centers generally provide clinical and wellness/corporate services. Clinical
services are based on physician referral of patients undergoing cardiac,
pulmonary, or diabetes rehabilitation and testing. Wellness/corporate services
are general health services offered to the public and employees and include
physicals, wellness screenings, and exercise equipment and each individual is
monitored by professional physicians, nurses, or exercise physiologists.

Specific inquiry: Taxpayer has attached a monthly lifecare center revenue
report and specifically requests what wellness/corporate revenue sources are
subject to sales tax. None of the clinical services are deemed taxable since
all clients involved are there due to doctor referral for purposes of
rehabilitation training due to sickness related aliments or treatment.

Applicable Law - Sec. 151.0028. "Amusement Services"

(a) "Amusement services" means the provision of amusement, entertainment, or
recreation, but does not include the provision of educational or health
services if prescribed by a licensed practitioner of the healing arts for the
primary purpose of education or health maintenance or improvement.

(b) "Amusement services" includes membership in a private club or organization
that provides entertainment, recreational, sports, dining, or social facilities
to its members.

Subsection (g)(7) of Rule 3.298 - Amusement Services, provides that:

Sales tax is not due on the purchase of the admission to an activity which may
be classified as an amusement, entertainment or recreation if purchased under
a written prescription of a licensed practitioner of the healing arts for the
primary purpose of health maintenance or improvement. The written prescription
must specify the type of the treatment needed. If a membership privilege is
purchased pursuant to a written prescription, a new prescription must be
obtained each time the membership is renewed.

Comptroller's Rule 5 3.298(a)(2) provides, in relevant part, as follows:

Nonamusement services - Activities which are primarily instructional in nature
or nontaxable personal services. Places and services not covered by the tax on
amusement services include, but are not limited to:

(A) . . .

(B) instructions for any sport or musical discipline; . . . .

Response: The taxability of the specific services provided by the taxpayer is
as follows:

Clinical revenues - would not be taxable since these testing and rehabilitation
charges are performed pursuant to physician referral and written prescription.

City of CITY A (CITY A) - charges for physicals and exercise tests performed or
supervised by a physician are not taxable.

Wellness Membership and screening - taxable unless purchased and paid for by an
exempt entity (i.e., City of CITY A) or purchased pursuant to a written
prescription of a licensed practitioner of the healing arts.

CHS Pre-employment physicals - charges for physicals and exercise tests
performed or supervised by a physician are not taxable.

Sports Medicine Wellness - taxable unless purchased and paid for by an exempt
entity (i.e., City of CITY A) or purchased pursuant to a written prescription
of a licensed practitioner of the healing arts.

Retail sales - taxable

Yoga - nontaxable - 3.298 (a)(2).

Personal training - nontaxable 3.298 (a)(2)(B). A separately-stated charge,
flat fee, or contract (separate and apart from the normal health/fitness club
membership) for club members to participate in personal training sessions will
not be taxable as an amusement service if:

a. the service involves personal one and one training, and

b. involves putting the client through the program, rather than just designing
the program and instruction on how to use the equipment.

Massage - nontaxable at a health club

Guest visits - taxable unless purchased and paid for by an exempt entity
(i.e., City of CITY A) or purchased pursuant to a written prescription of a
licensed practitioner of the healing arts.

Misc. screenings - nontaxable if performed by a physician, otherwise taxable
if part of the charge to obtain a wellness membership

Research: 8808L0937F01
9205L1169C11
9208L1196D13
8808L0937F01

NOTE: Previous Accession Number 9605269L