The “Tan Tax” is actually a 10% Federal Excise Tax imposed on businesses engaging in providing indoor tanning services.  It is part of the Patient Protection and Affordable Care Act signed into law by President Obama.  The tax applies to tanning services only and not tanning-related products.  The tax is in addition to any applicable state sales tax.

Excise Taxes are imposed on the business but not directly onto the consumer.  Of course the consumer ultimately pays for the cost of the Excise Tax; in many cases this cost is transparent to the consumer because it is simply ‘built-in’ to the price of the applicable products or services.  Common examples of this form of taxation include gasoline, tobacco and alcohol – merchants do not necessarily line-item each tax rate applicable to the resale of these products, yet the tax is reported and remitted to the appropriate revenue authority regularly.  Prices are adjusted in accordance with the current excise tax rate imposed.

It is important to note that regardless of whether the tax is apparent to the consumer, the merchant is ultimately responsible for remitting this tax which will be calculated based on the value of the taxable services provided.  Failure to reconcile the financial impact of this tax as part of a price adjustment will negatively impact the merchant’s profit margin.

Who is affected by the Tan Tax?

The Tan Tax is aimed at the indoor tanning industry specifically.  The section of law addressing this tax also specifically excludes licensed medical professionals using the same ultraviolet technology for phototherapeutic procedures.  The qualification for this exclusion is NOT based upon the method of payment for the service.  This means that the tax cannot be avoided simply because the payment is made by insurance instead of the consumer.

Merchants whose primary business is indoor tanning will be most apparently affected.  Also affected but less obvious is any merchant who offers indoor tanning as an ancillary service; this includes health clubs and fitness centers, day spas, hair salons and any other business model offering any amount of indoor tanning service that utilizes ultraviolet technology.

What services are subject to the Tan Tax?

Indoor tanning service is defined as “employing any electronic product designed to incorporate 1 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.”  Therefore, a tax on tanning service would only apply to those tanning services which utilize ultraviolet technologies.  Non-UV services as well as any products would not be applicable to this tax.  It will be important to adequately track the separation of revenue streams between UV and Non-UV services in order to prevent over- or under-reporting the services applicable under this tax.

How will Helios software handle the Tan Tax?

Helios LLC is already working to address the tan tax dilemma in its currently supported software products – Helios Versions 11, 12 Desktop, 12 Enterprise and Centrix.  There are several things that have to be addressed and these are outlined below.

Point of Sale Logic

The Helios Point of Sale will be able to calculate two separate tax rates on any applicable services; the tan tax and any applicable sales tax.  When two taxes are required, each tax rate will apply separately to the price of the service and then added to the line item subtotal.  This prevents a second tax rate from inadvertently taxing the first tax rate, essentially taxing tax.  Fortunately, this logic has already been developed in Helios for the Canadian market and is simply being redeployed appropriately for the U.S. applicability.

Sales Code Configuration

Helios’ Sales Codes will now reflect two available tax fields labeled Sales Tax and Excise Tax.  Any sales code that does NOT require the tan tax can simply leave the Excise Tax field unassigned and that tax rate will not be applied to that sales code.  There is also a Tax Included option that can be used – this will ‘hide’ the tax from the consumer by building it into the Default Price.  If you use this feature, please be sure to adjust your Default Price accordingly.  It will also include any Sales Tax in the Default Price.

The other consideration in Sales Code is to create separate Divisions and/or Departments to segregate tax-applicable tanning services from tax-exempt tanning services.  This will help define your revenue reports into clearly-defined categories and more easily determine your actual excise tax liability.

EFT Configuration

Helios’ EFT option will now reflect two available tax fields labeled Sales Tax and Excise Tax.  EFT memberships can be debited with the applicable tan tax added to the debit amount.

Helios EFT does not currently offer any logic that permits a proration of the tax rate(s) for memberships that provide tanning services along with any other membership benefits, nor does it define a tanning service EFT membership from another non-tanning service EFT membership.  These features are being analyzed and can be made available in a future update to the Helios software.

Changes to Reports

The only significant report change will be the Sales Tax report.  The Sales Tax report will now provide two separate tax rate lines, tracking Sales Tax and Excise Tax separately as they were calculated by the Point of Sale logic.  Other reports will also be useful in determining the total of taxable services and also exempting non-taxable services – therefore it is recommended to assign the Divisions and/or Departments appropriately in order to make these other reports concise and accurate.

How do I obtain the Tan Tax update for my Helios software?

Helios Centrix and Helios 12 Enterprise users do not need to do anything – the update will be applied automatically.  The update is being applied overnight on Tuesday June 8, 2010 in order that on Wednesday, June 9 the version of Helios you are using will include the Tan Tax logic.  You may need to restart your workstations after the update is applied in order for it to be fully applied.

Helios 11 and Helios 12 Desktop users will need to download the update from the Helios website and apply the update to each workstation.  The downloadable update will become available beginning on Wednesday, June 9, 2010.

Regardless of which version you are using, it is important to understand that the Tan Tax WILL NOT begin being charged simply because the update has been applied.  The update simply installs the logic required to calculate the tan tax.  A subsequent step will need to be performed to apply the 10% Tan Tax to your service sales codes.  This step should not be performed prior to July 1, 2010.

How do I apply the Tan Tax in my Helios software?

Helios has taken the additional step to aid in the implementation of the tan tax with a simple deployment utility.  For Enterprise and Centrix users, this utility will be executed for you on the evening of June 30, 2010.  Desktop users will need to run this utility themselves after the close of business on June 30 in order to apply the tan tax to your services.

Here’s what will happen: First, an available tax rate table will be located and the 10% rate assigned to it; second, all of your Service sales code types will be assigned to use the tax table in which the 10% tax rate has been assigned; third, Desktop users can also select to apply the 10% tax rate to Miscellaneous sales code types as well; fourth, the 10% tax rate will be applied to the EFT Post Info screen in order that it will be applied to EFT memberships during the next EFT draft.

One additional and manual step you will need to perform is to review your Service (and if selected, Miscellaneous) sales codes to ensure that any sales codes that should NOT be subject to the 10% tan tax have that tax removed.  The deployment utility cannot make this determination for you and it is ultimately less work for you to remove the implementation on a few sales codes than to have to apply the implementation to every applicable sales code.  The sales codes that may not be subject to the tan tax include package of services for non-UV tanning only and non-tanning related services in general.

What if I currently use the Tax Included function?

Tax Included uses the Default Price of a sales code and deducts the appropriate amount of tax in order that the extended price of a sales code is assured.  This is not commonly used in the U.S.  The Tan Tax deployment will not alter this function; however, when the 10% Excise Tax rate is applied to a sales code that is already using Tax Included, this will cause the pre-tax price to be further reduced by the calculation of sales tax AND excise tax which will ultimately lower net revenues.  This method ensures that the impact of the tan tax does not affect the price that the customer pays but it will most definitely impact the store’s profitability.  The same holds true if the Tax Included function is in affect on the EFT Post Info option.

There is not currently a method to indicate the Tax Included function for one of the taxes but not the other, nor are there any plans to separate the Tax Included functionality by individual taxes.

What happens to my EFT contracts?

Except for the use of the Tax Included function on the EFT Post Info option (see above), the amount being debited from your EFT customers’ accounts will change accordingly beginning with the July 1 Tan Tax implementation.  The EFT membership rate is NOT changing though, only the amount of tax being applied as the EFT is being debited.  Since this can generate a lot of customer service inquiries, it is recommended that you fully explain the implications of the Tan Tax to employees in order that they can effectively address any customer concerns / complaints about the change in their draft amount.

In most cases there should be no reason to re-generate an EFT contract since the amount stated on the contract is inserted from the EFT Enrollment Sales Code and is pre-tax in nature.  If your state sales tax includes these EFT services, the amount on the contract was already assumed to be pre-tax and did not reflect the total amount of the draft anyways.  If your state does not tax EFT services, it may be advisable to revise EFT contracts to include the terms “plus applicable taxes” following the EFT membership rate in order to indemnify your business.  Regardless, the implementation of the Tan Tax is certainly extraordinary in nature and outside of the scope of anything that could have been anticipated.

How do I remit the Tan Tax?

In contrast to Sales Tax that is imposed by a state revenue authority, the Tan Tax is being imposed by the Federal government and remittance is intended to be made to the U.S. Treasury.  This process is not part of the Helios application – Helios can only track and report on the tax liability; it cannot remit taxes to the appropriate authority.  It is therefore important to properly read and understand the Helios reports in order to figure out how much tan tax to remit and also be able to support your remittance if audited.

Other steps I should take to avoid over-taxing or under-taxing?

Properly assigning Divisions and/or Departments will be more important to this process than you may initially think.  For instance, if you sell a package that includes both UV tanning services and Non-UV tanning services, there is no logic in the Point of Sale that can prorate the 10% Excise Tax to just the applicable UV portion of the sale.  Likewise, the sale of pre-assigned packages such as tanning points or credits that can apply to both UV and Non-UV services can present a problem since you may not want to assess the Tan Tax until the package is redeemed for services and have the tax rate applied at the time of service.  There are all situations that are not easily addressed in a universal manner and would be best addressed specifically to your needs and intentions.  Helios Support is available 24 hours a day and 7 days a week to provide just this kind of user support for the Helios software products.  If you have any questions or problems implementing the Tan Tax logic in your Helios application or understanding how to redefine your service pricing and marketing to accommodate the Tan Tax, Helios Support remains available to any user who is on an active Software Maintenance Agreement (SMA).  The update will also be made available at no cost to anyone on an active SMA.

What are some common ‘issues’ regarding the Tan Tax update?

Understanding that many of the complaints and arguments about the tan tax are not at all directed at Helios but rather are general dissatisfactions with the tax imposition.  All Helios can do is accommodate the function of the law as best as it is understood given the limited information that was been made available to date.  As further information becomes available, Helios will continue to evaluate potential updates to accommodate better definitions and implementations of the tan tax language.

1.       Helios cannot assess the tan tax as packages are consumed as opposed to when packages are purchased – while this would be the ideal situation, it is not realistic or feasible given the current application logic without completely starting from scratch with an entirely new application architecture.  This would certainly be a lofty aspiration for a future version of Helios but no decision or time frame is available regarding such a revision.

2.       Helios cannot prorate the UV versus non-UV portion of a package or membership – the values of the UV (and therefore taxable) portion of a package or membership are not simply ’50-50’ or some simple formula and could really vary by client and by any space of time.  Member #1 could tan 8 times a month and spray tan 4 times a month while Member #2 could tan 4 times a month and spray tan 6 times a month.  Simply applying a 50-50 logic to a membership would actually under-tax Member #1 and over-tax Member #2.  Likewise, packages such as points or salon ‘money’ that can be redeemed for UV and non-UV services cannot be determined during the consumption process; therefore the only options available are to either segregate UV packages from non-UV packages or collect the tan tax on all packages and reimburse customers on a case-by-case basis if they have been overtaxed based on their package utilization.

3.       Helios cannot omit or waive the tan tax based on payment method – tax is calculated during the point of sale process by line item and payment method is not determined until the end of the point of sale process.  To revise the ticket at that time would jeopardize the entire transactional and reporting process and render it worthless from an accounting standpoint.  Again, a radical new approach to the point of sale could only be considered as part of a future version of Helios but will not be feasible by simply overhauling current Helios versions.

4.       Helios cannot delineate between EFT memberships that are UV or non-UV intended – the tan tax implementation as it relates to EFT memberships is only a stop-gap measure.  Long-term, there would need to be a field in the membership itself indicating whether that particular EFT membership is taxable and then tax can be applied only to those memberships during the EFT process.  This latter implementation would be part of an EFT Process overhaul project that is scheduled but has not yet begun.  There is not currently a release date for this EFT Overhaul update.

5.       Helios should not be configured to charge the tan tax on Gift Certificates, Gift Cards or Prepaid Dollars – these are neither products nor services and therefore are not subject to sales tax or tan tax until they are redeemed.  Upon redemption ,the products and services will be taxable at applicable rates and then these payment methods may be used to pay for the purchases and taxes.

June 14 Update: Additional information regarding the Tan Tax can be obtained here: http://www.gohelios.com/absolutenm/templates/newsArticle.aspx?articleid=86&zoneid=1