How does sales tax work on fitness memberships?
by January 1, 2024
Please note: This blog was originally published in 2021. It’s since been updated for accuracy and comprehensiveness.
In the not-so-distant past, a gym or fitness membership simply meant that you purchased a membership to a local gym, or maybe a chain of gyms, and traveled to that gym periodically to work out. (And let’s face it, some of us traveled there more than others.)
But these days, with advances in technology (and not to mention, a pandemic) how we work out has changed quite a bit. At home fitness technology like Peloton or Mirror still offer memberships and classes, but allow members to exercise without leaving home.
As always, as technology advances, states work diligently to catch up to it when it comes to how new types of products and services are taxed. Here’s what you need to know about sales tax on fitness memberships.
In-person gym membership taxability
In the U.S. tangible products that you can see and touch are generally taxable, while services are generally nontaxable. But there are exceptions, and in the US about half of the states impose sales tax on gym or health club memberships where the facility has a physical location such as a gym full of weight lifting equipment or a fitness studio where classes take place.
However, some of the more populated states, such as California and New York consider health club memberships tax exempt. Though the city of New York (as opposed to the state of New York) does impose a 4.5% sales tax on fitness memberships.
In some states, memberships at a nonprofit organization such as the YMCA are tax exempt.
Online fitness subscription taxability
Online fitness subscriptions to a service like FightCamp for boxing or Glo for yoga is taxed differently than an in-person gym membership. These services are taxed as if they are digital subscriptions because, in effect, they are.
These subscriptions can also be taxed differently if the classes are live (i.e. allowing for teacher student interaction) or pre-recorded (I.e. a video or audio recording of an instructor leading a workout.) In many states a live class is considered a non-taxable service while a pre-recorded class is considered a digital “product” and is taxable.
Fitness classes accessed remotely are also taxed differently in some states based on if you purchase them or rent them. For example, say you purchase a fitness class, download it to your computer and are allowed to keep it forever. Depending on the state, this can be taxed differently than a digital subscription that allows you to access the fitness class only so long as the fitness subscription remains active.
Further, some states don’t have a “sales tax” per se. For example, Arizona has “gross receipts tax” and Hawaii has “general excise tax.” These taxes tend to apply more expansively than sales tax and often do consider services like gym membership or online fitness subscriptions to be taxable whether they are “tangible personal property” or not.
Sales tax on gym supplies and equipment
Many in-person online gyms and fitness subscription services also sell tangible personal property like exercise equipment, supplements and snacks, or t-shirts.
In this case, the fitness business should charge sales tax based on how those items are taxed in the state where the purchase takes place. (For in-persona fitness centers, this is the gym or studio where the customer purchases the items. For online services, this is the buyer’s ship to address.)
Keep in mind that things like groceries, clothing and dietary supplements are often taxed differently in different states.
Collecting sales tax on gym and fitness memberships
In the US, retailers are required to collect sales tax from buyers in states where their business meets this criteria:
- They have sales tax nexus in the state
- The product or service they are selling is taxable in the state
I already covered the many nuances of product taxability above, so what’s all this about nexus?
Let’s look at some examples.
An independently owned gym operates in New York, New York. This gym sells memberships and has no employees, locations, inventory, etc. in any other location aside from their one NY, NY location. In this case, this gym owner’s sales tax compliance is fairly simple. They’d be required to collect the New York City 4.5% sales tax rate on all memberships, but they would not have to worry about collecting any other states’ sales tax rates because they have no nexus in any other states.
But now take an online fitness subscription service that offers subscription spin classes to customers all over the country. In this case, the service would potentially have sales tax nexus in multiple locations. They’d have nexus where their headquarters are located, as well as where any employees work, and where they store inventory in a warehouse. Further, they may have economic nexus. Economic nexus is attained when a business meets a state’s economic threshold. Thresholds vary by state, but you can check where your business has economic nexus by using TaxJar’s Economic Nexus Insights Dashboard.
From there, this business would be required to collect sales tax from subscribers in any state where they have nexus and where the products and services they sell are also taxable. In some cases a service that sells both products (equipment, clothing) and services might be required to collect sales tax on the products they sell but not the services they provide.
Subscription fitness services are fairly new in the scheme of things, and that’s why it can be confusing to determine whether or not the fitness membership or subscription service you sell is taxable. We always recommend consulting with a vetted sales tax expert to determine if you are charging sales tax correctly.
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