[4830-01-p]

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 40 and 49

RIN 1545-BJ40

Indoor Tanning Services; Cosmetic Services; Excise Taxes

[REG-112841-10]

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations.

SUMMARY: In the Rules and Regulations section of this issue of the Federal Register,

the IRS is issuing temporary regulations that provide guidance on the indoor tanning

services excise tax imposed by the Patient Protection and Affordable Care Act. These

regulations affect users and providers of indoor tanning services. The text of the

temporary regulations also serves as the text of the proposed regulations.

DATES: Written and electronic comments and requests for a public hearing must be

received by [INSERT DATE THAT IS 90 DAYS AFTER PUBLICATION OF THIS

DOCUMENT IN THE FEDERAL REGISTER].

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-112841-10), Room 5203,

Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044.

Submissions may be hand-delivered to: CC:PA:LPD:PR Monday through Friday

between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-112841-10), Courier’s

Desk, Internal Revenue Service, 1111 Constitution Avenue, NW; Washington, DC, or

sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov

(REG-112841-10).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,

Taylor Cortright, (202) 622-3130; concerning submissions of comments and requests

for a public hearing, Regina Johnson, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

The collection of information contained in this notice of proposed rulemaking has

been approved by the Office of Management and Budget in accordance with the

Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) and assigned control number

1545-2177. Comments on the collection of information should be sent to the Office of

Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office

of Information and Regulatory Affairs, Washington, DC 20503, with copies to the

Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP,

Washington, DC 20224. Comments on the collection of information should be received

by [INSTERT DATE THAT IS 90 DAYS AFTER PUBLICATION OF THIS DOCUMENT

IN THE FEDERAL REGISTER]. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper

performance of the functions of the Internal Revenue Service, including whether the

information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of

information;

How the quality, utility, and clarity of the information to be collected may be

enhanced;

How the burden of complying with the proposed collections of information may be

minimized, including through the application of automated collection techniques or other

forms of information technology; and

Estimates of capital or start-up costs of operation, maintenance, and purchase of

service to provide information.

The collection of information in this proposed regulation is in proposed

§49.5000B-1(d)(2). This information is required to be maintained in order for providers

of indoor tanning services to accurately calculate the tax on indoor tanning services

when those services are offered with other goods and services. The likely

recordkeepers are providers of indoor tanning services.

Estimated total average annual recordkeeping burden: 10,000 hours.

Estimated average annual burden hours per recordkeeper: 30 minutes.

Estimated number of recordkeepers: 20,000.

An agency may not conduct or sponsor, and a person is not required to respond

to, a collection of information unless the collection of information displays a valid control

number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long

as their contents may become material in the administration of any internal revenue law.

Generally, tax returns and tax return information are confidential, as required by 26

U.S.C. 6103.

4

This document contains proposed amendments to the Excise Tax Procedural

Regulations (26 CFR part 40) and the Facilities and Services Excise Tax Regulations

(26 CFR part 49) under section 5000B of the Internal Revenue Code (Code). Section

5000B of the Code was enacted by section 10907 of the Patient Protection and

Affordable Care Act, Public Law 111-148 (124 Stat. 119 (2010)) to impose an excise tax

on indoor tanning services. The text of temporary regulations published in this issue of

the Federal Register also serves as the text of these proposed regulations. The

preamble to the temporary regulations explains the temporary regulations.

It has been determined that this notice of proposed rulemaking is not a significant

regulatory action as defined in Executive Order 12866. Therefore, a regulatory

assessment is not required. It has been determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations.

It is hereby certified that these regulations will not have a significant economic impact

on a substantial number of small entities. This certification is based on the fact that

these regulations are designed to accommodate the recordkeeping methods currently

used by small entities that provide indoor tanning services. The regulations merely

implement the tax imposed by section 5000B of the Code, and section 6001 of the Code

already requires taxpayers to keep books and records sufficient to show whether or not

they are liable for tax. The information necessary to prepare these records is readily

available to providers, and this recordkeeping will take little additional time to complete.

Accordingly, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5

5

U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, this

regulation has been submitted to the Chief Counsel for Advocacy of the Small Business

Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations,

consideration will be given to any written comments (a signed original and eight (8)

copies) or electronic comments that are submitted timely to the IRS. The IRS and the

Treasury Department request comments on the clarity of the proposed rules and how

they can be made easier to understand. As described in the preamble to the temporary

regulations, comments are also requested regarding whether the presumption relating

to section 5000B(c)(2) (that the amount paid by the payor to the provider includes the

tax if the tax is not separately stated) is consistent with the manner in which providers

maintain books and records and specifically whether such a rule is useful for purposes

of minimizing recordkeeping burdens of the providers.

All comments will be available for public inspection and copying. A public

hearing may be scheduled if requested in writing by any person that timely submits

written comments. If a public hearing is scheduled, notice of the date, time, and place

for the hearing will be published in the Federal Register.

The principal author of these regulations is Taylor Cortright, Office of the

Associate Chief Counsel (Passthroughs and Special Industries). However, other

personnel from the IRS and the Treasury Department participated in their development.

6

26 CFR Part 40

Excise taxes, Reporting and recordkeeping requirements.

26 CFR Part 49

Excise taxes, Reporting and recordkeeping requirements, Telephone,

Transportation.

Accordingly, 26 CFR parts 40 and 49 are proposed to be amended as follows:

PART 40--EXCISE TAX PROCEDURAL REGULATIONS

Paragraph 1. The authority citation for part 40 continues to read in part as

follows:

Authority: 26 U.S.C. 7805. * * *

Par. 2. Section 40.0-1 is amended by revising paragraph (d) to read as follows:

§40.0-1 Introduction.

* * * * *

(d) [The text of this proposed §40.0-1(d) is the same as the text of §40.0-1T(d)

published elsewhere in this issue of the Federal Register].

(e) [The text of this proposed §40.0-1(e) is the same as the text of §40.0-1T(e)

published elsewhere in this issue of the Federal Register].

* * * * *

Par. 3. Section 40.6302(c)-1 is amended by adding paragraph (g) to read as

follows:

§40.6302(c)-1 Use of government depositaries.

* * * * *

(g) [The text of this proposed §40.6302(c)-1(g) is the same as the text of

§40.6302(c)-1T(g) published elsewhere in this issue of the Federal Register].

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PART 49--FACILITIES AND SERVICES EXCISE TAX

Par. 4. The authority citation for part 49 continues to read in part as follows:

Authority: 26 U.S.C. 7805. * * *

Par. 5. Section 49.0-3 is added to read as follows:

§49.0-3 Introduction; cosmetic services.

[The text of this proposed §49.0-3 is the same as the text of §49.0-3T published

elsewhere in this issue of the Federal Register].

Par. 6. Subpart G is added to read as follows:

§49.5000B-1 Indoor tanning services.

[The text of this proposed §49.5000B-1 is the same as the text of §49.5000B-

1T(a) through (h) published elsewhere in this issue of the Federal Register].

Steven Miller

Deputy Commissioner for Services and Enforcement.

The collection of information contained in these regulations has been reviewed

and approved by the Office of Management and Budget under control number 1545-

2177. The information is required to be maintained in order for the provider of indoor

tanning services to accurately calculate the tax on indoor tanning services when those

services are offered with other goods and services, as described in §49.5000B-1T(d)(2).

An agency may not conduct or sponsor, and a person is not required to respond to, a

collection of information unless the collection of information displays a valid control

number.

For further information concerning this collection of information, and where to

submit comments on the collection of information and the accuracy of the estimated

burden, and suggestions for reducing this burden, please refer to the preamble to the

cross-reference notice of proposed rulemaking on this subject in the Proposed Rules

section in this issue of the Federal Register.

Books or records relating to a collection of information must be retained as long

as their contents may become material in the administration of any internal revenue law.

Generally, tax returns and tax return information are confidential, as required by 26

U.S.C. 6103.

This document amends the Excise Tax Procedural Regulations (26 CFR part 40)

and the Facilities and Services Excise Tax Regulations (26 CFR part 49) under section

5000B of the Internal Revenue Code (Code). Section 5000B was added to the Code by

3

section 10907 of the Patient Protection and Affordable Care Act, Public Law 111-148

(124 Stat. 119 (2010)), to impose an excise tax on indoor tanning services.

Section 5000B(a) imposes on any indoor tanning service a tax equal to 10

percent of the amount paid for such service. Indoor tanning service, as defined in

section 5000B(b), does not include any phototherapy service provided by a licensed

medical professional. The regulations define phototherapy service and clarify that such

service must be performed by, and on the premises of, a licensed medical professional.

The tax applies to amounts paid after June 30, 2010, for indoor tanning services.

Liability for the tax arises at the time of payment for the indoor tanning services. In

some cases (such as purchase of an undesignated payment card, discussed later in

this preamble), it may not be possible to determine whether there is a payment for

indoor tanning services. Thus, the regulations provide in those cases that a payment is

treated as made, and the tax is imposed, at the time it can reasonably be determined

that the payment is made specifically for indoor tanning services. In the case of

membership fees paid to certain physical fitness facilities that provide indoor tanning

services, the regulations provide a different rule, discussed later in this preamble.

The regulations provide that the “amount paid” for purposes of determining the

tax base includes all amounts paid to the provider for indoor tanning services, including

any amount paid by insurance. Providers of indoor tanning services, however, often sell

other goods and services (such as protective eyewear, footwear, towels, and tanning

lotions; manicures, pedicures and other cosmetic or spa treatments; and access to sport

or exercise facilities) in addition to indoor tanning services. Thus, the regulations

4

provide rules for determining the tax when the provider charges for other goods and

services in addition to indoor tanning services.

Section 6001 requires taxpayers to keep books and records sufficient to show

whether or not they are liable for tax. To that end, the regulations allow the provider to

exclude charges for other goods and services if the charges are separable, do not

exceed the fair market value of the other goods and services, and are shown in the

exact amounts in the records pertaining to the indoor tanning services charge.

If the charges are not separately stated, but the total amount paid covers indoor

tanning services, then the tax is based on the portion of the amount paid that is

reasonably attributable to the indoor tanning services. For example, if the provider sells

bundled services in which the indoor tanning service is bundled with other goods and

services, and the charge is not separately stated, the tax applies to the amount paid that

is reasonably attributable to the indoor tanning services. This is consistent with the

approach taken in Rev. Rul. 63-155 (1963-2 CB 566) (relating to the application of the

section 4261 tax on transportation by air to a package tour sold by a hotel that includes

airfare, hotel accommodations, and other services not subject to the section 4261 tax).

The regulations provide that a payment for indoor tanning services is treated as

made, and liability for the tax is imposed, at the time it can reasonably be determined

that the payment is made specifically for indoor tanning services. If a payment is made

with a gift certificate, gift card or similar device with a monetary value that can be

redeemed for goods or services that may, but do not necessarily, include indoor tanning

services (an undesignated payment card), it can reasonably be determined that a

payment is made specifically for indoor tanning services when the undesignated

5

payment card is redeemed, in whole or in part, to pay specifically for indoor tanning

services (and not when a payment is made to purchase the undesignated payment

card). This is consistent with the approach taken in Rev. Rul. 56-157 (1956-1 CB 523)

(relating to the application of the section 4261 tax on transportation by air to a gift

certificate that could be redeemed for air transportation or cash). In these cases, the

provider of the services calculates the tax on the amount of the undesignated payment

card that is redeemed for indoor tanning services at the time it is redeemed, and the

rules of section 5000B(c) apply to determine the person liable for the tax.

If, however, the provider sells bundled services in which access to indoor tanning

services (in a specified or unlimited amount) over a period of time is bundled with other

goods and services, it can reasonably be determined that the payment is made

specifically for indoor tanning services at the time the bundled services are purchased,

because there is value attributable to the access to indoor tanning services. This is

different than the example of the gift certificate, because the gift certificate can be

redeemed entirely for non-taxable services, but the purchase of bundled services will

always include access to indoor tanning services in the “bundle”. In addition, for

purposes of these regulations, payments for indoor tanning services are subject to tax,

regardless of actual usage. Thus, the tax applies to the amount paid that is reasonably

attributable to the access to indoor tanning services, and the rules of section 5000B(c)

apply to determine the person liable for the tax.

On the other hand, in the case of a payment of a membership fee to a qualified

physical fitness facility (QPFF) (as defined in the regulations) that includes access to

indoor tanning services, the IRS and Treasury Department have determined that the

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access is incidental to the QPFF’s predominant business or activity and any amount

attributable to such access would be difficult to calculate and administer. Thus, an

amount paid to a QPFF is not a payment for indoor tanning services and the tax is not

imposed on the amount paid. The regulations narrowly define QPFF to require, among

other things, that the predominant business or activity of the facility is to serve as a

physical fitness facility, taking into consideration all of the facts and circumstances.

Thus, for example, a business predominantly engaged in providing indoor tanning or

other cosmetic services cannot become a QPFF by allowing users access to exercise

classes or pieces of exercise equipment. The regulations further provide that a QPFF

cannot charge separately for indoor tanning services, offer such services to the public,

or offer different membership fee rates based on access to indoor tanning services.

Thus, a physical fitness facility that distinguishes memberships based on access to

indoor tanning services is not a QPFF.

Section 5000B(c)(1) provides that the person liable for the tax is the individual on

whom the indoor tanning service is performed. In some cases, a person might pay for

services to be performed on someone else, such as by purchasing a gift certificate for

indoor tanning services. Because the tax is calculated on the amount paid for the

indoor tanning services, and because the statute contemplates that the tax will be

collected at the time payment is made, the person who pays for the services (payor) is

deemed to be the person on whom the services are performed for purposes of

collecting the tax. Thus, the payor is liable for the tax on the services. If a person pays

for a gift certificate for indoor tanning services (or for bundled services that includes

indoor tanning services), then the liability for the tax arises at the time of payment.

7

However, if a person purchases an undesignated payment card, then a payment

has not been made for indoor tanning services until the undesignated payment card is

redeemed specifically to pay for indoor tanning services. In that case, the liability for the

tax arises at the time the undesignated payment card is redeemed. The person who

redeems the card for indoor tanning services is deemed to be the person on whom the

services are performed for purposes of collecting the tax, and that person is liable for

the tax on the services.

Section 5000B(c)(2) provides that the person receiving the payment on which tax

is imposed (the provider) generally must collect the tax from the payor and pay the tax

over quarterly to the government. These regulations provide that the amount paid by

the payor to the provider is presumed to include the tax if the tax is not separately

stated.

In the Proposed Rules section in this issue of the Federal Register, the IRS and

Treasury Department are requesting comments regarding these temporary regulations,

including comments on whether the presumption relating to section 5000B(c)(2) (that

the amount paid by the payor to the provider includes the tax if the tax is not separately

stated) is consistent with the manner in which providers maintain books and records

and specifically whether such a rule is useful for purposes of minimizing recordkeeping

burdens of the providers.

If the payor does not pay the tax at the time payment for the indoor tanning

services is made, section 5000B(c)(3) provides that, to the extent the tax is not

collected, the provider must pay the tax. Thus, the regulations provide that if the

8

provider of the indoor tanning services fails to collect the tax from the payor at the time

the payor makes a payment for indoor tanning services, the provider is liable for the tax.

These regulations apply the existing excise tax procedural rules in 26 CFR part

40 to the tax on indoor tanning services. Thus, the tax, whether paid by the payor or the

provider under section 5000B(c), is reported by the provider on Form 720 “Quarterly

Federal Excise Tax Return.” These temporary part 40 regulations do not require

semimonthly deposits of tax; rather, full payment of the tax is due quarterly at the time

Form 720 is timely filed. The existing regulations also provide that once a Form 720 is

required to be filed for a calendar quarter, a Form 720 must be filed for each

subsequent calendar quarter, whether or not liability is incurred (or tax must be

collected and paid over) during that subsequent quarter, until a final return under

§40.6011(a)-2 is filed.

Some providers of indoor tanning services may operate more than one location

at which the services are provided. Each business unit that has, or is required to have,

a separate employer identification number is treated as a separate person that must file

a separate Form 720.

Collected taxes are held in special trust for the United States pursuant to section

7501, and any person who willfully fails to collect and pay over the tax may be subject to

the penalty in section 6672. The IRS will generally administer the indoor tanning

services tax (in Chapter 49 of the Code), the same way it administers the other

collected excise taxes in Chapter 33 of the Code (the communications and

transportation taxes). However, the reporting provisions in §49.4291-1 of the

regulations (relating to certain inabilities to collect or refusals to pay tax) do not apply to

9

the tax on indoor tanning services because section 4291 provides that these rules apply

only to the Chapter 33 taxes.

Availability of IRS documents

The IRS revenue rulings cited in this preamble are published in the Internal

Revenue Cumulative Bulletin and are available from the Superintendent of Documents,

P.O. Box 371954, Pittsburgh PA, 15250-7954.

It has been determined that this Treasury decision is not a significant regulatory

action as defined in Executive Order 12866. Therefore, a regulatory assessment is not

required. It also has been determined that section 553(b) of the Administrative

Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. For

applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), please refer to the

Special Analysis section in the preamble to the cross-referenced notice of proposed

rulemaking in the Proposed Rules section in this issue of the Federal Register.

Pursuant to section 7805(f) of the Code, these regulations have been submitted to the

Chief Counsel for Advocacy of the Small Business Administration for comment on their

impact on small business.

The principal author of these regulations is Taylor Cortright, Office of the

Associate Chief Counsel (Passthroughs and Special Industries). However, other

personnel from the IRS and the Treasury Department participated in their development.

10

26 CFR Part 40

Excise taxes, Reporting and recordkeeping requirements.

26 CFR Part 49

Excise taxes, Reporting and recordkeeping requirements, Telephone,

Transportation.

26 CFR Part 602

Reporting and recordkeeping requirements.

Accordingly, 26 CFR parts 40, 49, and 602 are amended as follows:

PART 40--EXCISE TAX PROCEDURAL REGULATIONS

Paragraph 1. The authority citation for part 40 continues to read in part as

follows:

Authority: 26 U.S.C. 7805. * * *

Par. 2. Section 40.0-1 is amended as follows:

1. Paragraph (d) is redesignated as paragraph (f) and new paragraphs (d) and

(e) are added.

2. The paragraph heading of redesignated paragraph (f) is revised.

The addition and revision read as follows:

§40.0-1 Introduction.

* * * * *

(d) [Reserved]. For further guidance, see §40.0-1T(d).

(e) [Reserved]. For further guidance, see §40.0-1T(e).

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(f) Effective/applicability dates. * * *

Par. 3. Section 40.0-1T is added to read as follows:

§40.0-1T Introduction (temporary).

(a) through (c) [Reserved]. For further guidance, see §40.0-1(a) through (c).

(d) Indoor tanning services. The regulations in this part 40 also set forth

administrative provisions relating to the excise taxes imposed by chapter 49, relating to

cosmetic services.

(e) Effective/applicability date. Paragraph (d) of this section applies to returns

that relate to calendar quarters beginning after June 30, 2010.

(f) [Reserved]. For further guidance, see §40.0-1(f).

(g) Expiration date. Paragraph (d) of this section expires on or before [INSERT

DATE THREE YEARS AFTER THIS DOCUMENT IS FILED FOR PUBLIC

INSPECTION WITH THE OFFICE OF THE FEDERAL REGISTER].

Par. 4. Section 40.6302(c)-1 is amended by:

1. In paragraph (a)(1), removing the language “by statute” and adding “by

statute, by §40.6302(c)-1T(g),” in its place.

2. Revising the paragraph heading in paragraph (f).

3. Adding paragraph (g).

The revision and additions read as follows:

§40.6302(c)-1 Use of Government depositories.

* * * * *

(f) Effective/applicability date. * * *

(g) [Reserved]. For further guidance, see §40.6302(c)-1T(g).

12

Par. 5. Section 40.6302(c)-1T is added to read as follows:

§40.6302(c)-1T Use of government depositaries (temporary).

(a) through (f) [Reserved]. For further guidance, see §40.6302(c)-1(a) through

(f).

(g) Exception for indoor tanning services. No deposit is required for the taxes

imposed by section 5000B (relating to indoor tanning services) for any calendar quarter

beginning after June 30, 2010.

(h) Expiration date. This section expires on or before [INSERT DATE THREE

YEARS AFTER THIS DOCUMENT IS FILED FOR PUBLIC INSPECTION WITH THE

OFFICE OF THE FEDERAL REGISTER].

PART 49--FACILITIES AND SERVICES EXCISE TAX

Par. 6. The authority citation for part 49 continues to read in part as follows:

Authority: 26 U.S.C. 7805. * * *

Par. 7. Section 49.0-3T is added to read as follows:

§49.0-3T Introduction; cosmetic services (temporary).

On and after July 1, 2010, this part 49 also applies to taxes imposed by chapter

49 of the Internal Revenue Code, relating to cosmetic services. See part 40 of this

chapter for regulations relating to returns and payments of taxes imposed by chapter

49.

Par. 8. Subpart G is added to read as follows:

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§49.5000B-1T Indoor tanning services (temporary).

(a) Overview. This section provides rules for the tax imposed by section 5000B

on any indoor tanning service.

(b) Imposition of tax--(1) General rule. Tax is imposed by section 5000B at the

time of payment for any indoor tanning service.

(2) Undesignated payment cards. In the case of an undesignated payment card

(within the meaning of paragraph (c)(5) of this section), payment for indoor tanning

services is made when it can reasonably be determined that a payment is made

specifically for indoor tanning services. Thus, when the undesignated payment card is

redeemed, in whole or in part, to pay for indoor tanning services (and not when a

payment is made to purchase the undesignated payment card), it can reasonably be

determined that a payment for indoor tanning services is made, and the tax is imposed.

(3) Payments to qualified physical fitness facilities. No portion of a payment to a

qualified physical fitness facility (within the meaning of paragraph (c)(4) of this section)

that includes access to indoor tanning services is treated as a payment for indoor

tanning services.

(c) Definitions--(1) Indoor tanning service means a service employing any

electronic product designed to incorporate one or more ultraviolet lamps and intended

for the irradiation of an individual by ultraviolet radiation, with wavelengths in air

between 200 and 400 nanometers, to induce skin tanning. The term does not include

phototherapy service performed by, and on the premises of, a licensed medical

professional (such as a dermatologist, psychologist, or registered nurse).

14

(2) Other goods and services include, but are not limited to, protective eyewear,

footwear, towels, and tanning lotions; manicures, pedicures and other cosmetic or spa

treatments; and access to sport or exercise facilities.

(3) Phototherapy service means a service that exposes an individual to specific

wavelengths of light for the treatment of--

(i) Dermatological conditions (such as acne, psoriasis, and eczema);

(ii) Sleep disorders;

(iii) Seasonal affective disorder or other psychiatric disorder;

(iv) Neonatal jaundice;

(v) Wound healing; or

(vi) Other medical condition determined by a licensed medical professional to be

treatable by exposing the individual to specific wavelengths of light.

(4) Qualified physical fitness facility means a facility--

(i) In which the predominant business or activity is providing facilities, equipment,

and services to its members for purposes of exercise and physical fitness (determined

by taking into consideration all of the facts and circumstances, such as the cost of the

equipment, variety of services offered, actual usage of services by customers, revenue

generated by different services, and how the entity holds itself out to the public through

advertising or other means);

(ii) In which providing indoor tanning services is not a substantial part of the

business or activity; and

15

(iii) That does not sell indoor tanning services for a fee to the public or otherwise

offer different pricing options to its members based in whole or in part on access to

indoor tanning services.

(5) Undesignated payment card means a gift certificate, gift card, or similar item

that can be redeemed for goods or services that may, but do not necessarily, include

indoor tanning services.

(d) Application of tax--(1) Tax on total amount paid for indoor tanning services.

The tax is imposed on the total amount paid for indoor tanning services, including any

amount paid by insurance.

(2) Charges for other goods and services; tanning services separately stated. If

a payment covers charges for indoor tanning services as well as other goods and

services, the charges for other goods and services may be excluded in computing the

tax payable on the amount paid, if the charges--

(i) Are separable (regardless of the manner of invoicing the charges);

(ii) Do not exceed the fair market value of such other goods and services; and

(iii) Are shown in the exact amounts in the records pertaining to the indoor

tanning services charge.

(3) Charges for other goods and services; tanning services bundled. This

paragraph (d)(3) applies if paragraph (d)(2) of this section does not apply. If a provider

offers indoor tanning services (whether of a specified or unlimited amount, including

“free” or reduced-rate indoor tanning services) bundled with other goods and services,

the payment for the bundled services includes an amount paid for indoor tanning

services. The tax applies to that portion of the amount paid to the provider that is

16

reasonably attributable to indoor tanning services. The amount reasonably attributable

to indoor tanning services may be determined by applying to the total amount paid a

ratio determined by comparing--

(i) The provider’s charge for indoor tanning services not in bundled services or, in

the event the provider only charges for other goods and services as part of bundled

services, the fair market value of similar services (based on the amount charged by

comparable providers in the same geographic area); to

(ii) The charge determined in paragraph (d)(3)(i) of this section plus the

provider’s charge for the other goods and services in the bundled services or, in the

event the provider only charges for other goods and services as part of bundled

services, the fair market value of similar goods and services (based on the amount

charged by comparable providers in the same geographic area).

(e) Person liable for the tax--(1) General rule. The person who pays for the

indoor tanning service is deemed to be the person on whom the service is performed for

purposes of collecting the tax. Thus, the person paying for the indoor tanning service is

liable for the tax at the time of payment.

(2) Undesignated payment cards. In the case of a payment made with an

undesignated payment card (within the meaning of paragraph (c)(5) of this section)

described in paragraph (b)(2) of this section, the person who redeems the card, in

whole or in part, to pay specifically for indoor tanning services is the person who pays

for the indoor tanning services. Thus, the person who redeems an undesignated

payment card, in whole or in part, to pay specifically for indoor tanning services is liable

for the tax at the time such payment is made.

17

(3) Tax not collected at time of payment. If the person paying for the indoor

tanning services does not pay the tax to the person receiving the payment for the

services at the time of payment for the services, the person receiving the payment is

liable for the tax.

(f) Persons receiving payment must collect tax. Every person receiving a

payment for indoor tanning services on which a tax is imposed under this section shall

collect the amount of the tax from the person making that payment. The total amount

paid is presumed to include the tax if the tax is not separately stated.

(g) Examples. The following examples illustrate the application of section 5000B

and this section.

Example 1. A is a provider of indoor tanning services and other goods and

services. On July 1, 2010, B, an individual, pays A for one 10-minute indoor tanning

service (as defined in paragraph (c)(1) of this section) and one pair of protective

eyewear. A charges $15.00 for the 10-minute indoor tanning service and $2.00 for a

pair of protective eyewear. The $2.00 charge for the protective eyewear does not

exceed its fair market value. The invoice from A is $17.00 (exclusive of the tax imposed

by section 5000B) and separately states the cost of the protective eyewear. Because

the cost of the protective eyewear is separately stated, A calculates the section 5000B

tax on $15.00 as provided by paragraph (d)(2) of this section. B is liable for the tax

when B pays for the services. If A does not collect the tax from B at the time B pays for

the services, A is liable for the tax.

Example 2. A, a provider of indoor tanning services and other goods and

services, periodically offers bundled services to promote additional business. On July 1,

2010, C, an individual, buys bundled service from A that includes 10 swimming lessons,

the use of towels while on A’s premises, one pair of protective eyewear, and 2 “free” 10-

minute indoor tanning services. A charges $252.00 (exclusive of the tax imposed by

section 5000B) for the bundled services. If these services are purchased separately, A

charges (exclusive of the tax imposed by section 5000B) $25.00 per swimming lesson,

$15.00 for a 10-minute indoor tanning service, $2.00 for the protective eyewear and

does not charge for the use of towels while on A’s premises. As determined under

paragraph (d)(3) of this section, the section 5000B tax applies to the amount reasonably

attributable to the indoor tanning service, which is $26.81 (($30/$282) x $252).

Example 3. On July 1, 2010, D buys bundled services (described in Example 2)

from A as a gift for C. Under paragraph (e)(1) of this section, D is deemed to be the

18

person on whom the indoor tanning services are performed for purposes of collecting

the tax. Therefore, under paragraph (b)(1) of this section, D is liable for the tax when D

pays for the services. The tax will be computed under the rules of paragraph (d)(3) of

this section. If D does not pay the tax at the time D pays for the services, A is liable for

the tax.

Example 4. S operates a spa that provides a variety of cosmetic goods and

services, including indoor tanning services. On July 1, 2010, D buys a gift certificate in

the amount of $100.00 from S as a gift for C. The gift certificate may be redeemed by C

for C’s choice among several services offered by S, including indoor tanning services.

On July 15, 2010, C partially redeems the gift certificate to pay for one 10-minute indoor

tanning service. Under paragraph (b)(2) of this section, a payment for indoor tanning

services is made, and the tax under section 5000B is imposed, on July 15, 2010, when

C partially redeems the gift certificate to pay for one indoor tanning service. Under

paragraph (e)(2) of this section, C is the person who pays for the indoor tanning

services. Therefore, C is liable for the tax, computed under the rules of paragraph (d) of

this section, and pays the tax by permitting S to debit the amount of the tax from the

balance of the gift certificate or by paying the amount of the tax to S in cash. If C does

not pay the tax at the time C partially redeems the gift certificate to pay for the indoor

tanning services, S is liable for the tax.

Example 5. On July 1, 2010, E pays $1000 (exclusive of the tax imposed by

section 5000B) to spa S for the right to use the following equipment and services during

the month of July: up to four massages or facials, unlimited use of a sauna, steam

room, showers, and towel service, and unlimited indoor tanning services. If the services

are purchased separately, S charges (exclusive of the tax imposed by section 5000B)

$150 for unlimited indoor tanning services during the month of July, and $900 for the

other equipment and services during the month of July, not including indoor tanning

services. Under paragraph (b) of this section, E has made a payment for indoor tanning

services and the tax will be computed under the rules of paragraph (d)(3) of this section.

As determined under paragraph (d)(3) of this section, the section 5000B tax applies to

the amount reasonably attributable to the indoor tanning services, which is $142.86

(($150/$1050) x $1000). If E does not pay the tax at the time E pays for the bundled

services, S is liable for the tax.

Example 6. G operates a full-service gym facility that offers fitness classes,

multiple exercise machines (such as treadmills, stationary bicycles, weight training

machines, and free weights), and has as its predominant business providing these

facilities, equipment, and services to members for purposes of exercise and physical

fitness. G provides its members with access to indoor tanning services, comprised of

two tanning beds that meet the definition of indoor tanning services under paragraph

(c)(1) of this section. G generally charges its members a fee for monthly usage of its

facilities, equipment, and services, but also offers short-term or free trial memberships

and allows non-members to purchase individual or a series of exercise classes. G does

not charge any fee for the indoor tanning services, does not offer indoor tanning

services separately from its other services, and has no membership tier or category that

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differs from others based on access to the indoor tanning services. G holds itself out to

the public through advertising and marketing as providing equipment and services to

improve physical fitness. On July 1, 2010, F pays a membership fee to G in return for

use of G’s facility during the month of July. Under paragraph (b)(3) of this section, no

portion of F’s membership fee payment is treated as a payment made for indoor tanning

services, because G is a qualified physical fitness facility under paragraph (c)(4) of this

section. Therefore, no liability for tax arises under section 5000B.

(h) Effective/applicability date. This section applies to amounts paid after June

30, 2010, for indoor tanning services.

(i) Expiration date. This section expires on or before [INSERT DATE THREE

YEARS AFTER THIS DOCUMENT IS FILED FOR PUBLIC INSPECTION WITH THE

OFFICE OF THE FEDERAL REGISTER].

20

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION

ACT

Par. 9. The authority citation for part 602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 10. In §602.101, paragraph (b) is amended by adding the following entry in

numerical order to the table to read as follows:

§602.101 OMB Control numbers.

* * * * *

(b) * * *

CFR part or section where Current OMB

indentified and described control No.

* * * * *

1.5000B-1…………………………………………………. 1545-2177

* * * * *

Steven T. Miller

Deputy Commissioner for Services and Enforcement.

Approved: June 9, 2010

Michael Mundaca

Assistant Secretary of the Treasury (Tax Policy).

[FR Doc. 2010-14398 Filed 06/11/2010 at 11:15 am; Publication Date: 06/15/2010]