If a health club member gets a written prescription from a doctor for an exercise program, is the membership fee exempt from Texas sales tax?

Subject

Health/Athletic Club/Gym Membership — Exemption Requires Written Prescription By Physician/Licensed Practitioner

Plain-English summary

A health and fitness facility asked the Comptroller whether its membership and initiation fees could avoid sales tax entirely. The facility offered cardiovascular and aerobic activities, sponsored athletic competitions, and provided family programs. It argued it was different from an ordinary health club because it tracked members' activity data in a database used for research (data that had been used as the basis for several books), and it felt its emphasis was medical rather than recreational.

The facility monitored members more closely once they hit certain ages — men 40 and over and women 50 and over were treated as possibly "at risk" and had to undergo stress testing and evaluation. Members found to be "at risk" received a written exercise prescription. Members not considered "at risk" simply met with staff to set up a workout program, without a prescription. An on-site physician was available for safety and to supervise cardiac rehabilitation and senior citizen programs.

The taxpayer argued that none of its services should count as "amusement" and that all its fees should be exempt from Texas sales tax. The Comptroller disagreed with that broad claim. Under Rule 3.298(g)(7) (the amusement services rule), a membership is exempt only when it is purchased pursuant to a written prescription from a licensed practitioner of the healing arts, for the primary purpose of health maintenance or improvement. Fees tied to memberships that were not obtained under such a prescription are taxable as amusement services — the ruling makes clear the facility could have a mix of taxable and exempt memberships depending on whether each individual member had a qualifying written prescription.

What this means for you

• Simply calling your business "medical" or "fitness-focused," or pointing to research value, does not exempt membership fees from sales tax.
• The exemption turns on a specific, individual fact: whether a member's specific membership was purchased under a written prescription from a licensed healing-arts practitioner, issued for health maintenance or improvement.
• A facility can owe tax on some memberships and not others at the same time — the taxability is determined member-by-member, not facility-wide.
• Internal risk-screening or wellness programs (like the age-based "at risk" stress testing here) do not by themselves create an exemption unless they result in an actual written prescription for that member.
• Businesses in this situation should keep documentation showing which members have a qualifying written prescription on file, since that is what supports exempt treatment for those specific fees.

Common questions

Does having an on-site physician make all gym memberships tax-exempt?
No. The ruling states the on-site physician here was available for safety purposes and to supervise cardiac rehab and senior programs, but that alone did not exempt membership fees. Exemption depends on each member having a written prescription for the membership.

What if a member is designated "at risk" but doesn't get a written prescription?
Based on the ruling's framework, a membership fee is exempt only when purchased pursuant to a written prescription. Being flagged as "at risk" and undergoing stress testing is not itself the exemption trigger — the written prescription is.

Can a single health club have both taxable and exempt memberships?
Yes. The ruling states the total charge for membership and initiation fees is taxable or exempt "depending upon" whether that particular membership was purchased under a qualifying written prescription — meaning the answer can differ from member to member at the same facility.

Who can write the qualifying prescription?
The ruling refers to "a licensed practitioner of the healing arts," per section 3.298(g)(7) of the amusement services rule, without further specifying which license types qualify beyond that phrase.

Does research use of member data affect the tax treatment?
The taxpayer raised its data-tracking and research use (including that the data had been used in books) as a reason it should be treated differently from a typical health club. The Comptroller's answer did not adopt that distinction; it applied the standard written-prescription test under Rule 3.298(g)(7) regardless.

Citations and references

• 34 Tex. Admin. Code § 3.298(g)(7) — amusement services rule; written-prescription exemption for health club memberships

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9208L1196D13

Original ruling text

DATE: August 5, 1992

TO: Steve Hiebert, ** Audit

FROM: Joan Hale, Tax Administration Division

SUBJECT: Amusement Services

RE: **, Taxpayer Number ****

Situation: Taxpayer is a health and fitness facility providing a variety of
cardiovascular and aerobic activities to its members. It sponsors a number of
athletic competitions for its members and corporations. Family activities are
also provided for its membership. Taxpayer maintains there is a major
difference between this facility and other health/fitness clubs in that its
members' activities are recorded on a database and used for research by
**. **** has used the data as a basis for several of his
books.

Memberships are available to adults of all ages, but special monitoring (via a
tracking system) is performed for males 40 and over and females 50 and over
(these are considered as possible "at risk" members). These members must
undergo "stress testing" and evaluation; those determined "at risk" are given
an exercise prescription. All members who are not considered "at risk" will
meet with one of the Center's staff for his/her exercise program; no
prescription is issued. Each member also receives ongoing consultation by the
staff. An on-site physician is available for safety purposes, as well as for
supervising regularly scheduled cardiac rehabilitation and senior citizen
programs.

Taxpayer claims that the ** Fitness Center should not be classified
as a health club where the emphasis is primarily amusement and recreation.
Taxpayer states that from its beginning, the center's emphasis has been medical
and that posture has been enhanced over the past two decades. Taxpayer feels
the exclusion from paying a sales tax has added motivation for the members to
adhere strictly to all of their medical requirements including the stress
testing and the daily data entry. Taxpayer feels the loss of this incentive
would adversely affect their programs and may negate future productivity in the
area of fitness research and the reduction of health care costs.

Question: Taxpayer contends that none of the services it provides should be
considered an amusement and that all of its services should be exempt from
Texas sales tax. Are any of the membership and initiation fees charged by the
taxpayer taxable under Rule 3.298 as an amusement or are all the services
exempt as contended by the taxpayer?

Answer: The total charge, membership and initiation fees, will be totally
taxable or totally exempt depending upon whether the membership is purchased
pursuant to a written prescription of a licensed practitioner of the healing
arts as outlined in section 3.298(g) (7) of the amusement rule. The only
membership and initiation charges exempt from tax are those charges for
services provided by the Center as prescribed by a licensed practitioner of the
healing arts for the primary purpose of health maintenance or improvement of
the members. All other membership and initiation fees are taxed as amusement
services.

Joan Hale