South Dakota was tired of hearing all this Quill v. North Dakota sales tax physical presence talk, so they took on Wayfair and won. Now South Dakota gets its day in the sales tax sun!
Yikes, that's an old song! Bringing out an Olivia Newton John-referenced title is risky (especially without including a picture of Travolta), but it is really appropriate considering the Tennessee Department of Revenue's recent notice regarding physical fitness facilities and the application of the Tennessee sales tax to those businesses. See Notice 18-09.
There has been a dust up in this area of the sales tax law related to crossfit operations and whether the tax applies to those operations. There is at least one case pending in Hamilton County Chancery Court. The crossfit operators are taking the position that crossfit is physical fitness training and the amusement tax only applies to "membership in sports and recreation clubs." Crossfit is saying they are not a recreation club and that payment for the cross fit training is merely a payment for the cross fit training/personal training services and not for an actual club membership.
It appears that the Department has a difference of opinion on that factual position based on their audits and assessments. The Department's notice clarifies its position that the provision of services at the facility is also taxable, including exercise classes, calorie burning, strength building or body sculpting classes. The Notice also provides that instruction in sports or recreational activities are not subject to tax (e.g. Martial arts, dance lessons, gymnastics, fending, skiing and yoga teacher training). Thus, it appears that going forward the tax will be applied to cross fit classes, although anecdotally we have heard they plan to resolve the pending assessments favorably with the cross fit operators. For those who haven't received a nastygram from the Department, take note of this notice and adjust accordingly for future transactions.
Notably, this is not the first time that Tennessee has delved into amusement tax issues in recent years. The Department also took issue with mobile tour buses in Notice 16-09 concluding that those tours were also subject to the amusement tax.
Based on these recent developments, those businesses providing recreational/amusement or other entertainment should revisit whether they should be collecting and remitting the amusement tax, and do it before the Tennessee Department of Revenue decides to get physical with you...