Yesterday, the IRS held a webinar addressing the collection of the new Excise Tax on Indoor Tanning Services. The IRS representatives offered valuable information about what services are taxable, business exemptions, collecting the tax and filing.

The tax applies to all electronic UV tanning services, such as beds, upright units and handheld devices. Red light devices and spray tanning are not subject to the tax. The tax applies to almost all businesses offering UV tanning services, including health spas, hair salons, video stores, etc.

The only types of businesses that are exempt from the tax are licensed phototherapy providers (dermatologists) and certain physical fitness facilities. For a physical fitness facility to be exempt, its primary business must obviously be physical fitness, and there must be no sort of additional fee for the use of the tanning beds.

The responsibility of collecting the tax falls onto the business owners. There are three ways the owner can collect the tax:

1. Collect from the person purchasing the electronic UV tanning service

2. Collect when a person uses a gift card to purchase the electronic UV tanning service

3. If not collected from the purchasers, than the service provider is responsible for paying the tax

When determining the tax on a service bundle, the owner must first determine what price the customer would pay for the UV tanning service if everything was priced separately. Then take the ratio of that cost in relation to all the other services unbundled and multiply it by the bundled price. The resulting price is the cost that is subject to the tax. Here is the example the IRS gives:

A salon operator offers a special bundle price for 10 swimming lessons and two “free” indoor tanning services for $200. Outside of the bundled service, the operator charges $20 for each swim lesson and $15 for each tanning service, for a total regular charge of $230. The amount subject to tax for the bundled service is computed as 30/230 x 200 = $26.08. The indoor tanning tax is 10 percent of $26.08, which is $2.60.

To file the tax, it must be reported on the IRS Form 720 and the business must have an Employer Identification Number. The tax is due four times a year: January 31, April 30, July 31, and October 31. Since October 31 of 2010 is a Sunday, the first day the tax is due is on November 1.

Click here for the “Excise Tax on Indoor Tanning Services Frequently Asked Questions”