Could a Florida health studio remit sales tax month by month as it collected installments under an annual membership agreement?

Plain-English summary

The health studio could not wait to remit tax until each monthly payment was collected. Florida treated the annual membership agreement as a retail installment contract for taxable admissions, making the full tax due when the agreement was entered into in the same manner as a cash sale.

The sample agreement stated an annual percentage rate, finance charge, amount financed, total payments, and total sales price. It also allowed acceleration after default and a possible finance-charge refund for early payoff. Those terms contradicted the taxpayer's characterization of the payments as merely due when monthly services were used.

What this means for you

Calling payments “monthly” does not necessarily defer the tax. If a customer commits in advance to future taxable services under a financed or deferred-payment agreement, the transaction may require tax at contract formation rather than upon later collection.

Common questions

Q: Were health-club dues taxable admissions? Yes. The ruling cited the definition covering dues and fees paid to clubs providing recreational or physical-fitness facilities.

Q: Why was this an installment contract? The agreement financed future services and included an annual percentage rate, finance charge, amount financed, default remedies, and prepayment terms.

Q: When was the tax due? When the membership agreement was entered into, not as the monthly payments arrived.

Citations and references

• Fla. Stat. §§ 212.02(1), 212.04(1), (3) — taxable admissions
• Fla. Stat. § 212.06(1)(a) — credit, installment, and deferred-payment sales
• Fla. Stat. §§ 501.012-501.017 — health-studio contracts
• Fla. Stat. § 520.31(10), (11) — retail installment contracts
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-045

Original ruling text

SUMMARY

QUESTION: When a health club charges an annual fee, but
collects the fee in monthly payments, can the health club
wait to pay tax on the fees until they are collected?

ANSWER - Based on Facts Below: No. The membership
agreement was a retail installment sales contract because
finance charges and interest were required on the amount
financed. Therefore, taxes are due at the time of the
agreement, in the same manner as tax would be due on a cash
sale.

Sep 03, 1999

Re: TAA 99A-045
Sales and Use Tax - Tax Due at Time of Sale or Transaction
Sections 212.02, 212.04, 212.06, F.S.
Petitioner: XXX (Taxpayer)

Dear :

This is a response to your request dated XX, for the issuance of
a Technical Assistance Advisement (TAA) concerning the above
referenced matter. Your petition has been carefully examined,
and the Department finds it to be in compliance with the
criteria set forth in Chapter 12-11, F.A.C. This response to
your request constitutes a TAA, and is issued to you under the
authority of s. 213.22, Florida Statutes.

STATED FACTS

Your letter provides the following:

As part of its operations, [Taxpayer] enters into contracts
whereby its members agree, over a specified period of time,
to make monthly payments which coincide with their use of
future XXX. For example, while a member may enter into a

contract for a period of one year, payment is made on a
monthly basis, which is paid as the member uses the
studio's services. Thus, payment is not made until the
services are rendered, and vice versa. This inquiry does
not concern payments which are made up-front, but rather,
is limited to payments which are made on a monthly basis as
the members use the health studio's services. (Emphasis in
original)

REQUESTED ADVISEMENT

Your request for advice involves the timing of tax on the
monthly payments. You are seeking confirmation that sales tax
on the aforementioned contracts should not be collected from the
members, or remitted to the State, until the monthly payments
have been received from the members.

LAW AND ANALYSIS

Section 212.02(1), F.S., defines the term "admissions" to mean
and include all dues and fees paid to private clubs and
membership clubs providing recreational or physical fitness
facilities.

Pursuant to s. 212.04(1), F.S., it is the Legislative intent
that every person is exercising a taxable privilege who sells or
receives anything of value by way of admissions. For the
exercise of such privilege, a tax is levied at the rate of 6
percent of the sales price, or actual value received, for such
admissions. Section 212.04(3), F.S., further provides:

(3) Such taxes shall be paid and remitted at the same time
and in the same manner as provided for remitting taxes on
sales of tangible personal property.

Section 212.06(1)(a), F.S., provides in pertinent part:

(1)(a) The aforesaid tax at the rate of 6 percent of the
retail sales price as of the moment of sale,... shall be
collectible from all dealers as herein defined on the sale
at retail,... of tangible personal property or services

taxable under this chapter. The full amount of the tax on
a credit sale, installment sale, or sale made on any kind
of deferred payment plan shall be due at the moment of the
transaction in the same manner as on a cash sale.

Sections 501.012 through 501.019, F.S., except as otherwise
defined, provide for the administration of health studios.
Section 501.017(1), F.S., prescribes the contractual provisions
in health studio contracts when such contracts are "... for the
sale of future health studio services which is paid for in
advance or which the buyer agrees to pay for in future
installment payments...."

Section 520.31(10), F.S., defines a "retail installment
contract" to mean an agreement "... reflecting one or more
retail installment transactions entered into in this state
pursuant to which goods and services may be paid for in
installments." Subsection (11) defines the term "retail
installment transactions."

DETERMINATION

You have included a copy of a sample contract (Exhibit A),
entitled "Membership Agreement."

You contend that "neither an installment sale,' nor any other type ofdeferred payment plan', as defined by Section
212.06(1)(a) of the Florida Statutes, exists. The only contract
by and between [Taxpayer] and its members is the attached form
membership agreement."

However, the attached sample Membership Agreement provides,
under the Payment Information section, for: Annual Percentage
Rate; Finance Charge; Amount Financed; Total of Payments; and
Total Sales Price Including Down Payment or First Monthly
Payment. The Payment Information section also provides the
following pertinent information:

Default: You are in default if we do not receive a payment
from you within 10 days. If you default we can demand full
payment of the entire amount you owe. If you default you

agree to pay all costs of collection, including collection
agency and attorney fees.

Prepayment: If you pay off early all of the amount you owe,
you may be entitled to a refund of part of the finance
charge.

Considering the provisions of s. 501.012 through 501.017, F.S.,
and 520.31(10) and (11), F.S., cited above, together with your
own statement on the first page of your letter dated July 22,
199, that the members "... agree, in advance, to pay for future
health studio services...," the members' payments are made
pursuant to a retail installment contract. It is noted that the
provisions on the reverse side of the Membership Agreement are
those mandated by the s. 501.017, Florida Statutes. Therefore,
in accordance with the provisions of s. 212.06(1)(a), F.S., tax
would be due when the Membership Agreement is entered into.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Dee Overcash
Senior Tax Specialist

Ctrl #38444

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