Were charges for scheduled aerobics instruction subject to Utah sales tax when customers received no general right to use a fitness facility or equipment?

Plain-English summary

Utah Private Letter Ruling 95-027 concluded that charges for the described “pure” aerobics instruction were exempt from sales tax.

The business sold scheduled professional lessons. Customers did not buy admission to a facility and had no independent right to use workout equipment.

The Commission treated the classes as lessons under Administrative Rule R865-19S-33, not admission or user fees under Utah Code section 59-12-103(f)(i).

The result was narrow. Any charges for customers to use facilities or equipment had to be separately stated and taxed.

The instruction-only business model

The redacted business offered structured aerobics classes involving cardiovascular, strength, and endurance instruction.

Instructors demonstrated techniques, adapted movements for different fitness levels, and provided information about exercise, diet, injury prevention, pregnancy, and other needs.

The business had no workout equipment or facility that customers could use independently.

Light weights, exercise bands, and similar items were used only during scheduled classes under instruction.

What customers paid for

Customers paid for one-hour classes, could buy 12 classes in advance at a lower hourly price, or could contract and pay monthly in advance for the scheduled classes offered.

The contract said the student received only aerobics instruction.

It expressly denied any right to use exercise equipment or a facility except as incidental to scheduled instruction, and it did not grant a right to enter any location.

Why the lesson charge was exempt

The ruling identified section 59-12-103(f)(i) as imposing sales tax on admission or user fees for sports and other amusement, entertainment, recreation, exhibition, cultural, or athletic activities.

Administrative Rule R865-19S-33 said charges for public or private lessons were not admission or user fees.

The Commission found that the described aerobics instruction was a lesson.

Because customers paid for instruction rather than facility admission or independent equipment use, the participation charges were exempt from sales tax.

Separately taxable facility or equipment use

The Commission distinguished pure instruction from a fitness arrangement that also charged for facility or equipment use.

Any charges for participants to use facilities or equipment had to be separately stated and taxed.

The ruling also said any taxable charges should be recognized for sales-tax purposes as the revenue was recognized under generally accepted accounting principles.

Holding

The Commission concluded that:

• The described aerobics instruction was a lesson.
• Charges for participation in those instruction-only classes were exempt from sales tax.
• Facility-use or equipment-use charges had to be separately stated and taxed.
• Taxable charges were recognized for sales-tax purposes when recognized under generally accepted accounting principles.

The conclusion was based on the facts presented and could be negated by factual deviations.

What this means for you

Independent fitness instructors

A structured lesson did not become taxable merely because students used light weights or exercise bands during the instruction.

Gyms and studios

Separate instruction from open facility or equipment access. The ruling exempted the former but required the latter to be separately stated and taxed.

Accountants

Review contracts, class descriptions, access rights, invoices, and revenue-recognition treatment. Labels alone are less useful than what customers are actually entitled to receive.

Common questions

Q: Were pure aerobics classes taxable?

A: No. The Commission treated the described classes as exempt lessons.

Q: Did using weights or exercise bands during class make the fee taxable?

A: No. Those items were incidental to scheduled instruction, and customers had no right to use them independently.

Q: Could the business charge one amount for lessons and general gym access without tax?

A: The ruling did not allow that result. Facility or equipment-use charges had to be separately stated and taxed.

Q: Did buying classes in advance change the answer?

A: The facts included advance class packages and monthly advance payment, while the Commission still characterized the described participation charges as exempt instruction.

Q: Could another fitness business rely on this ruling?

A: The conclusion was limited to the presented facts, especially the absence of general facility or equipment access.

Key source language

• Lesson classification: “The aerobic instruction provided by XXXXX as described in your letter would be considered a lesson, and charges for participation are exempt from sales tax.”
• Separate taxable use: “Any charges to participants for use of facilities or equipment must be separately stated and taxed.”
• Factual limitation: “This opinion is based upon the facts presented in your letter. Obviously, if there are deviation from these facts, the opinion may be negated.”

Citations and references

• Utah Code Ann. § 59-12-103(f)(i)
• Utah Admin. Rule R865-19S-33
• Utah Tax Bulletin 15-94 (discussed in the request materials)

Source

• Landing page: Utah Private Letter Rulings
• Official ruling: Utah PLR 95-027

Original ruling text

95-027

Response May 25, 1995

Request

March 29, 1995

Re: Sales/Use Tax for XXXXX

Dear XXXXX:

At your request, I am writing to provide a legal analysis of whether payments for aerobics instruction are subject to tax under Utah Code Ann. 59-12-103(f)(i). As you know, I represent XXXXX, one of the few businesses which offers �pure� aerobics instruction; i.e., the business has no workout equipment or facility where its students work out on their own. You indicated that you have reported your findings to the Utah State Tax Commission and that the Commission may be providing �informal guidance� on this issue. You encouraged me to copy the Commissioners on this letter. I appreciate the opportunity to comment.

In order to provide a legal analysis of the potential tax, it is necessary that I provide sufficient factual background. My discussion begins with a description of the qualifications of the XXXXX aerobic instructors. At the risk of being too elementary, I have also briefly outlined what is involved in an �aerobics� class. Lastly, I have described how customers pay for aerobics instruction.

FACTUAL BACKGROUND

I. Instructor Qualifications

The director of XXXXX is XXXXX. XXXXX has certifications from the preeminent exercise associations, including certifications in aerobics instruction, step aerobics and personal training from the Aerobic and Fitness Association of America (�AFAA�) and the American Council on Exercise (�ACE�). XXXXX is the President of the Utah Fitness Instructors Association and is a fitness expert who appears weekly on XXXXX where she presents fitness instruction and advice. XXXXX is also a paid consultant for XXXXX and travels nationally presenting continuing education lectures and workshops through ACE and AFAA. XXXXX has a bachelor degree in education. All of the instructors at XXXXX have been trained by XXXXX and each instructor has been certified through ACE and/or AFAA. The certifications test the instructor's knowledge of anatomy, kinesiology, exercise physiology, nutrition, weight management and practical application.

II. Outline of Aerobics Classes

The phrase �aerobics class� is somewhat of a misnomer. The instruction provided by XXXXX, and the industry in general, involves far more than a cardiovascular, or �aerobic,� workout. All of XXXXX's classes involve instruction in strength and endurance training. By way of example, XXXXX offers �circuit� classes where students are instructed in a short cardiovascular workout, followed immediately by a series of �stations� where the student receives instruction in strength training using weights, exercise bands and other exercise methods. XXXXX offers another class which is exclusively strength training, without any cardiovascular exercise.

Classes are extremely structured in the sense that the students are asked to follow each move of the instructor. Consequently, one of the keys to being an effective instructor is to be able to provide appropriate instruction for people of all fitness levels. At XXXXX, the instructors are constantly demonstrating two or three different techniques to work the same muscle group and to meet the varying fitness levels of the students. It is critical to safety that students not feel compelled to do more than they are physically capable. Any perception that aerobics instructors merely exercise on their own or go �guts out� is grossly mistaken. The objective of aerobics instruction is to provide complete and competent instruction for every student throughout the entire class. XXXXX's instructors also provide information to students on a variety of fitness related subjects, including diet, injury prevention, pregnancy and other special needs.

It is also important to understand why people seek aerobics instruction from XXXXX and other professional programs. XXXXX's students are generally over 30 and the range in age is from 20 to 65. Many have never exercised on a regular basis. Most have little or no experience in correct exercise technique. Students need to be instructed in how to do a correct squat, for example, so as not to jeopardize their knees, or how to do a correct bicep curl. Students are taught proper exercise techniques such as working opposing muscle groups. In short, customers at XXXXX and elsewhere receive instruction in exercise techniques, physiology and diet.

III. Payment for Aerobics Instruction

XXXXX has no equipment which is made available to its customers for their personal use. The only thing XXXXX has to offer is aerobics instruction at scheduled classes. The classes are held in XXXXX of the XXXXX, a public building. The room is empty except to the extent that steps, bands or hand held weights are pulled out and distributed for use during scheduled classes.

XXXXX receives payment for only one thing: providing aerobics instruction. Students pay a fee to receive instruction at a one hour class and have the option to purchase 12 hourly classes in advance, at a reduced hourly rate. Students also have the option to purchase all hourly classes offered by XXXXX by signing a contract and agreeing to pay for such classes one month in advance. The contract provides that the student's only right is to receive aerobics instruction at scheduled classes. The contract states:

This agreement does not provide [Student] with the right to use any exercise equipment or facility except that which is incidental to the instruction provided in scheduled classes. This agreement does not provide [Student] with a right of entrance to any facility or location, and instruction may be provided at more than one location.

Agreement for Aerobics Instruction at Paragraph 9.

LEGAL ANALYSIS

I. Payment for Aerobics Instruction is not an Admission or User Fee

It is my understanding that some members of the compliance auditing division have taken the position that fees paid for aerobics instruction are subject to tax under Utah Code Ann. 59-12-103(f)(i). l That interpretation is erroneous. The statute provides that the tax will be levied for an admission or user fee for . . . sporting events . . . or any other amusement, entertainment, recreation, exhibition, cultural or athletic activity.� Id. (emphasis added). When a customer pays to receive aerobics instruction at XXXXX, unlike other health spas which offer workout facilities, the customer has no right to use anything. Nor is the payment an admission fee for entrance to an athletic facility. These issues are discussed in greater detail below.

A. XXXXX Is Not Paid An "Admission Fee"

In 49th Street Galleria v. Tax Commission Auditing Division , 860 P.2d 996 (Utah Ct. App. 1993), the Court was required to determine whether under 59-12-103 fees collected for use of batting cages, a roller skating rink and laser tag equipment are subject to tax as an �admission fee.� The Court first noted that, consistent with what you told me recently, the audit division itself has �for quite some time had questions about which activities come under the definition of an admission.� Id. at 998 n.5. The Court stated that the Tax Commission's interpretation of �admission� would be reviewed without deference and for correctness. The Court, however, found no significant difference between the Tax Commission's definition of �admission� in the Utah Administrative Code R865-19-335(A) (1993) and Webster's Third New International Dictionary (1976). In each, the essence of the definition is a right to enter into a place. Id. at 1000.

The Court reversed the Tax Commission's finding that payment for use of that 49th Street Galleria's facilities were an �admission fee.� The Court held that �[t]here is simply no fee charged by the Galleria for admission to any place; there are only fees charged to do particular things.� Id.

The Court's holding clearly applies to XXXXX. The aerobics instruction offered by XXXXX is provided in the XXXXX, a public building and, on some occasions, classes are held out of doors. No one is required to pay a fee for admission to the building or XXXXX in particular. Potential customers are free to view and have in fact viewed classes without paying any fee to enter the building or the aerobics room. As in 49th Street Galleria , XXXXX does not charge an �admission� fee to enter any place.

B. XXXXX Is Not Paid A �Use Fee

We are aware that Utah Code Ann. 59-12-103 was amended so that use of equipment, such as the batting cages, roller skating rink and laser tag equipment in 49th Street Galleria , are now subject to tax. That amendment to the use tax, however, does not change the situation for XXXXX. The service offered by XXXXX is distinguishable from the business of the 49th Street Galleria and other health clubs� in one important respect. XXXXX, unlike the Galleria and other studios, has no workout facilities or equipment that a person pays to �use� on their own. Although some light weights and exercise bands are used during scheduled classes in accordance with precise instruction, XXXXX's customers have no right to �own� or �lease� any equipment. See Utah Code Ann. �59-12-102(5)(a) (defining �use�).

Further, the fact that XXXXX's customers use bands or hand held weights during scheduled classes does not change the fundamental nature of the service provided. The Tax Commission has already recognized that other �athletic,� �recreation� or �cultural� lessons offered by professionals are not subject to tax. The list of activities that the division has determined are not subject to tax includes dance lessons, tennis lessons, golf lessons, personal training, martial arts and piano lessons. In Tax Bulletin 15-94, the Tax Commission expressly states that lessons, �professional or private,� are not subject to sales or use tax. The Bulletin lists golf lessons as an example. Id. It is clear, therefore, that such lessons do not lose their essential nature because certain �equipment� or tangible property� is necessary in order to provide the lesson. Obviously, the capital investment in a tennis court, a golf driving range or a piano, is far greater than the investment in an elastic band or hand held weight used during aerobics instruction. The fundamental character of the service remains: XXXXX charges a fee for professional aerobic instruction.

Similar to the above activities, aerobics involves professional instruction. As I expressed to you in our meeting, the contrary view reflects either an ignorance of what takes place during a professional aerobics class or a bias and discrimination that cannot be justified. Aerobics instructors such as those at XXXXX are highly trained professionals. Those professionals provide a service to customers including instruction in exercise techniques, stress reduction and diet. The instructors have qualifications which meet or exceed those of personal trainers, tennis instructors or other professionals whose services are not subject to tax.

Finally, it must also be emphasized that XXXXX's service and method of charging for its service is distinct from the business of other fitness facilities. Tax Bulletin 15-94 states that if a single charge is assessed for a golf lesson and a round of golf, the entire amount is subject to tax. That warning draws a rational line because in the hypothetical the business failed to separate instruction from the use of its facilities. Some fitness studios may likewise charge a single fee which entitles the customer to attend aerobic classes and to generally use a facility on their own. In that circumstance, the tax would apply. 2 However, that description does not apply to XXXXX.

XXXXX charges for only aerobics instruction and no facilities are offered to its customers . 3

II. The Compliance Department's Position Violates The Equal Protection Clause of the U.S. Constitution

In addition to an erroneous reading of Utah Code Ann. 59-12-103, the compliance department's offered implementation of the statute violates the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution. The United States Supreme Court has recognized that it is a violation of Equal Protection for a state to implement a tax in a way which �bears unequally on persons or property of the same class.� Allegheny Pittsburgh Coal Co. v. County Commission of Webster County , 488 U.S. 333, 343 (1989) (quoting Charleston Fed. Sav. & Loan Ass'n v. Alderson , 324 U.S.182, 190 (1945)). Although the legislature may properly impose different tax burdens, the law must be applied �even handedly to all similarly situated [taxpayers].� Id. at 345. See also Edward Values, Inc. v. Wake County , 451S.E. 2d 641 (N.C.Ct.App. 1995) (Equal Protection Clause violated by implementation of an improper distinction between taxpayers'). Consequently, the State Tax Commission is empowered �merely to make rules and regulations, etc., in conformity with the [statute].� Western Leather & Finding Co. v. State Tax Commission , 87 Utah 227, 48 P. 2d 526, 528 (1935). Here it is clear that the department is proposing to implement Utah Code Ann. 59-12-103(f)(i) in a manner which violates Equal Protection.

As stated in 49th Street Galleria , it is the admission or user fee which triggers tax: �[t]he meaning of ... 'amusement, entertainment or recreation' becomes relevant only if the threshold determination of an 'admission' [has been shown.� 860 P. 2d at 1000, n. 13. Thus, the division has correctly taken the position that instruction provided pursuant to such things as dance lessons, tennis lessons, martial arts, personal training and piano lessons are not admission or user fees for ... sporting events ... or any other amusement, entertainment, recreation, exhibition, cultural or athletic activity. The division has properly determined that although the activity in each of those circumstances might be considered �athletic� or �cultural�, the customer is not paying for use of equipment or to enter a facility. The customer is paying to receive instruction.

Clearly no Constitutional distinction can be drawn between the above activities and aerobics classes. In each instance the essence is that a person pays a fee to receive professional instruction. Aerobics instruction is not materially different from dance instruction, tennis instruction or personal training in that regard.

The fact that the distinction being drawn by some in the compliance audit division does not pass Constitutional scrutiny is illustrated by the discord in the division itself. As you and I discussed, on XXXXX an attorney with XXXXX requested the advice of XXXXX, an auditor in the Audit Department of the Utah State Tax Commission, regarding XXXXX's business. XXXXX confirmed that fees for aerobics instruction are not subject to tax under 59-12-103(f)(i) so long as the fee does not entitle the student to use exercise facilities on their own outside of offered classes. That interpretation is consistent with Tax Bulletin 15-94 and is the only interpretation which applies 103(f)(i) in a manner consistent with Equal Protection.

I hope you find the above letter helpful. I look forward to hearing from you.

Sincerely,

XXXXX

____________

1. You have explained that the situation is �fluid� and the auditors are hoping to receive guidance from the Utah State Tax Commission. In stating that the �division� has taken a certain position, I realize the view is not uniformly shared and may not reflect your personal view. In fact, as confirmed in my prior letter to you, XXXXX has been instructed by the Tax Commission to not currently collect tax. My reference to the �division's� position is for ease of reference.

____________

__________

2. To the extent a fitness studio complies with Tax Bulletin 15-94 and separately charges for aerobics instruction, those instruction fees should not be taxable.

__________

__________

3. In our meeting, you also raised the issue of whether the contract signed by some of XXXXX's students could reasonably be construed as a �season pass� within the meaning of Utah Code Ann. 59-12-102(1)(a). I believe the answer is clearly no. First, aerobics instruction has no �season� within the ordinary meaning of that word. See Morton Internat'l Inc. v. Auditing Division of the Utah State Tax Commission , 814 P. 2d 581, 590 (Utah 1991) (A �term should be interpreted and applied according to its usually accepted meaning.... �). Second, the word �pass� connotes a payment for an �admission� which, as discussed in detail above, XXXXX does not charge. Third, to the extent �season pass� is interpreted to mean any payment in advance, without regard to what the payment is for, the statute is thereby given a meaning which is �unreasonably confused, inoperable [and] in blatant contradiction to the express purpose of the statute.� Id. Obviously, payment for professional services are made in advance all the time without subjecting the payment to tax. For example, tuition, a legal retainer and medical insurance premiums all represent payments in advance of professional services. Those payments, like the payments to XXXXX for future aerobics instruction, are not �season passes.�

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M E M O R A N D U M

TO: XXXXX

FROM: XXXXX

DATE: May 22, 1995

Re: Health Club/Spa Project

As requested, the following is information you requested on this project.

During the spring of 1994 I had a chance to review a draft version of what I later think turned out to be our UTC Bulletin (15-94). I made a mental note at the time that I felt the activities as listed in the Bulletin included the health/spa club industry even though they were not actually listed.

During the summer of this same year (1994) I was assigned to do an audit of a Health Club in XXXXX called XXXXX. The information that came with the assignment indicated that the owner had been bragging how they had managed to acquire all their fitness equipment without paying any of the required sales/use tax. Several months passed before I was able to get all of the required paperwork from the taxpayer but in September we filed an assessment of approximately $$$$$ which included interest and penalty (XXXXX�). They paid the entire audit.

While performing the above audit, I was concerned to find that the taxpayer was surprised when I mentioned that they were subject to the new sales tax on admissions/use fees. Later, when I wondered if I might be wrong, I contacted XXXXX, Auditing, who confirmed what I suspected.

When I reviewed the results of my audit of XXXXX with XXXXX, I suggested and he agreed that I should begin to contact the industry. In terms of the sales tax on admissions/user fees, XXXXX and I agreed that the focus of our effort should be one of education. It was and has been my main concern that a large portion of the tangible personal property subject to use tax in this industry has escaped assessment.

The following is a list of taxpayer's that I personally have been reviewing:

ADMISSIONS USE TAX

NAME ASSESSMENT REFUND ASSESSMENT

XXXXX

*Strictly aerobic centers (waiting UTC advisory opinion)

**XXXXX has been difficult through the audit process in that they are refusing to collect our tax prior to XXXXX or XXXXX. It might be more efficient to refer it to Auditing for an audit in XXXXX. XXXXX might also be referred to auditing since they have been estimating their liability for use tax on each quarterly return.

***XXXXX owners acquired this entity in XXXXX and knowing they needed to collect the tax began doing so in XXXXX. They were not licensed until I made my field contact. They were subsequently licensed and paid the tax plus XXXXX penalty.

****XXXXX was found to be in bankruptcy. We hurried to do an assessment to see that our interests were secured during the process. We never expect to see much if anything from the assessment. We will amend the audit to zero in accordance with the agreement.

May 25, 1995

Re: Advisory Opinion - Sales Tax Application to Charge for �Pure� Aerobics Instruction As Described -XXXXX

Dear XXXXX:

You requested an advisory opinion as to whether sales tax applies to your client's charges for �pure� aerobics instruction.

Our research indicates as follows:

1. Utah Code Annotated Section 59-12-103(f)(I) imposes the sales tax on amounts paid or charged for �admission or user fees for . . . sports activities, or any other amusement, entertainment, recreation, exhibition, cultural, or athletic activity.�

2. Administrative Rule R865-19S-33, indicates that charges for �lessons, public or private� are not charges for activities considered to be admission or user fees.

3. The aerobic instruction provided by XXXXX as described in your letter would be considered a lesson, and charges for participation are exempt from sales tax.

4. Any charges to participants for use of facilities or equipment must be separately stated and taxed.

5. Any taxable charges should be recognized for sales tax purposes as the revenue is recognized under generally accepted accounting principles.

This opinion is based upon the facts presented in your letter. Obviously, if there are deviation from these facts, the opinion may be negated.

If you do not agree with this determination, you may appeal to the Tax Commission for a formal hearing. The results of that hearing would constitute a declaratory judgement and be appealable to the Utah State Supreme Court. A Notice of Appeal Rights and a copy of the Utah Taxpayer bill of Rights

Respectfully,

Alice Shearer

Commissioner