As the demand for a sun-kissed glow among the consumers has increased, there have been rising times in the usage of indoor tanning services. With this high demand comes the significant fiscal liability that the owners of the salons face, the tax imposed on indoor tanning services. Therefore, to stay compliant without suffering the penalty, knowledge of the implications of this tax as well as its associated filing requirements is essential for the operators. This paper explores excise taxes on indoor tanning services in detail, what they are, who pays for them, and how one can manage necessary filings.
Understanding Excise Taxes on Indoor Tanning Services
Excise taxes are federal assessments placed on specific products or services, often to reduce the use of those products or as revenue for the government. The indoor tanning tax was created in the Affordable Care Act of 2010 by fashioning the tax to reduce risks to health associated with excessive tanning and to raise revenue for healthcare. Indoor tanning services are subject to taxation, including tanning beds, booths, and other applicator devices.
The excise tax is collected at the rate of 10% in the whole amount paid for the use of tanning services. As such, all indoor tanning salons irrespective of size and location are automatically affected. Salon owners need to be taught that this tax is not just in the control of the authorities but also for the promotion of public health to reduce the rate of usage of tanning services associated with problems of skin cancer, among others.
Who Must Pay?
If you operate or own an indoor tanning business, you must pay the excise tax on the tanning service. You are:
- Commercial Tanning Salons: A trade or business that provides tanning as a charge, whether a freestanding entity or an ancillary of another fitness-oriented business.
- Mobile Tanning Services: Businesses providing tanning services on the move must also adhere to the provisions of the excise tax.
- Beauty Salons and Spas: Merchants offering indoor tanning as a secondary business need to measure and collect this tax on tanning sessions.
Filing Excise Tax on Indoor Tanning Services
Tax excise on indoor tanning services can appear pretty complex. However, breaking them into manageable steps, the salon owners will have a good chance of adhering to the specific rules set by the IRS.
Step 1: Obtain EIN
It is a process followed by obtaining an Employer Identification Number (EIN) from the website of the IRS. It must not have been assigned an EIN or should not be an existing one. Also, they need to have an active EIN for filing excise tax.
You would require an EIN to begin filing your taxes. The EIN is used by the IRS as a number to identify your company and monitor your tax liabilities. You can obtain an EIN from the official IRS website. Fortunately, it doesn’t take a long time, and it is quite straightforward as well.
- Determine Your Tax Liability
You will compute excise tax, for each customer who pays for tanning services, as a percentage of total payment received. So, when you receive $50 from your client for any tanning session, the amount of excise tax will be $5 (10% of $50). Just remember that all these transactions will need to be documented in a reporting period for you to make an accurate report.
- File Form 720
You would file a Form 720 IRS Quarterly Federal Excise Tax Return if you report and pay excise tax on indoor tanning services. This has to be filed quarterly, so you would file this four times within the year; by the 30th of the month indicated for each quarter.
Q1: January – March Due April 30
Q2: April – June Due July 31
Q3: July – September Due October 31
Fourth Quarter (October – December): Due by January 31 of the following year
Make sure that you report the correct amount of your tax liability on Form 720, especially in Part II, reporting the excise taxes you owe on indoor tanning services.
- Make Payment
Excise tax payable as of the time of filing Form 720: You actually pay in time with the filing of Form 720. The IRS has alternative ways of payments and these are through electronic funds transfer, credit card payment, and checks. Tax must always be paid on time since failure to do so attracts interest or penalty.
Keeping and Compliance Records
The indoor tanning salon owners must maintain accurate records. According to the IRS, for example, they should be kept for at least three years from the date the return is filed. Some of the records include:
- All the transactions detailed
- Copies of Form 720 and any correspondence with the IRS
- Any documentation that is required to support the computation of tax, such as receipts and invoices.
The third purpose is record-keeping, aiding you in the event of an audit as well as helping you track your salon’s health and its financial standing.
Effects of Non-Compliance
Failure to comply with the requirements of excise tax may lead to a worse situation. The IRS suffers penalties from late filing and payment, which is normally shocking when the tallies come together. Non-compliance may attract an audit that increases your financial liabilities. Thus, compliance with regulations concerning the excise tax is key to ensuring your salon continues running without a hitch.
There are important excise tax requirements for indoor tanning services that salon owners should be aware of in order to stay up to date and protect their businesses from likely issue or even legal action. Understanding the regulation, filing Form 720, keeping proper records-these will ensure you face no issues with the complexities of excise taxes. As a growing indoor tanning industry, awareness of your tax obligations will protect your business but also aid in creating a healthier public view of tanning services. Old timers or new players to the salon business, compliance with excise taxes is one step closer to sustainable success.