5419989 Tax and Revenue, Office of - Notice of Final Rulemaking - Regulations on sales and use tax on newly taxable services

OFFICE OF TAX AND REVENUE

 

NOTICE OF FINAL RULEMAKING

 

The Deputy Chief Financial Officer of the District of Columbia Office of Tax and Revenue (OTR) of the Office of the Chief Financial Officer, pursuant to the authority set forth in D.C. Official Code § 47-2023 (2012 Repl.); Section 201(a) of the 2005 District of Columbia Omnibus Authorization Act, approved October 16, 2006 (120 Stat. 2019, Pub.L. 109-356; D.C. Official Code § 1-204.24d (2014 Repl.)); and the Office of the Chief Financial Officer Financial Management and Control Order No. 00-5, effective June 7, 2000, hereby gives notice of its intent to amend Chapter 4 (Sales And Use Taxes), of Title 9 (Taxation and Assessments) of the District of Columbia Municipal Regulations (DCMR), by adding Sections 423-429.

 

Sections 423-429 provide guidance regarding the collection of tax on the newly taxable services of bottled water delivery, bowling alleys and billiard parlors, car washing, carpet and upholstery cleaning, health-clubs, the storage of household goods, and tanning. The guidance in this rulemaking is necessary to provide clarity to taxpayers attempting to comply with District sales and use tax statutes and would aid in the fair and efficient administration of District laws.

 

A version of these rules was originally published in the D.C. Register as a proposed rulemaking on August 29, 2014 at 61 DCR 08973. Due consideration was given to public comments received regarding the proposed changes.  In light of public comments, a change was made to the health-club services regulation to clarify the taxation of personal training.

 

This rule was adopted as final on April 9, 2015, and will take effect upon publication of this notice in the D.C. Register.

 

Chapter 4, SALES AND USE TAXES, of Title 9 DCMR, TAXATION AND ASSESSMENTS, is amended to add the following sections as follows:

 

423                  BOTTLED WATER DELIVERY SERVICE

 

423.1               The sale by a bottled water delivery service of bottled water by the gallon generally for use with and to be dispensed from a water cooler or similar type of water dispenser is subject to sales tax.

 

423.2               Persons operating a bottled water delivery service business must report and pay the sales tax on the gross proceeds derived from that business.  A security deposit is not part of the taxable purchase price.

 

424                  bowling alley or a Billiard parlor Service

 

424.1               The sale of or charge for the service of a bowling alley or a billiard parlor is subject to sales tax.

 

424.2               The total amount charged for bowling is subject to tax. Taxable receipts for bowling shall include all fees or charges, including entry fees and league fees. 

 

424.3               Bowling balls, shoes and other equipment are exempt from tax when sold as sales for resale to the provider of the service of a bowling alley. The tax applies to sales at retail and rentals of such property to customers and must be collected and remitted by the provider.

 

424.4               The total amount charged for billiards is subject to tax, including charges for coin-operated pool tables. Taxable receipts for participation in billiards shall include all fees or charges for billiards, whether by the game, by the hour, or by other measure.

 

424.5               The entire bundled charge for both taxable bowling alley or a billiard parlor services and nontaxable services will be presumed taxable if a primary purpose of the transaction is the sale of the taxable bowling alley or a billiard parlor services.  The presumption may be overcome by the services provider at the time of the transaction by separately stating to the customer a reasonable charge for the taxable services.  The service provider's books must support the apportionment between taxable and nontaxable services based on the cost of providing the service or on a comparison to the normal charge for each service if provided alone. If the charge for nontaxable services is unreasonable when considering the cost of providing the service or a comparable charge made in the industry for each service, the DCFO will adjust the charges and assess additional tax, penalty, and interest on the taxable services.

 

424.6               For purposes of this section:

 

(a)        "Billiards” means the game of striking balls on a cloth-covered table with a cue stick, whether by the game or by the hour.

 

(b)        “Bowling” means the game of rolling a ball down an alley to knock down pins, including candle-pin, duck-pin, five-pin, and ten-pin bowling.

 

(c)        “Service of a billiard parlor” means participation in billiards.

 

(d)       “Service of a bowling alley” means participation in bowling, as an individual or as part of a league.

 

425                  Car washing services

 

425.1               The sale of or charge for the service of car washing, including cleaning, washing, waxing, polishing, or detailing an automotive vehicle is subject to sales tax.

 

425.2               The sale of or charge for self-service car washing is not subject to sales tax.

 

425.3               Persons operating places of business for the purpose of car washing must report and pay the sales tax measured by the gross proceeds derived from these services.

 

425.4               Materials such as cleaning fluids, wax, and other consumable supplies used in connection with the services of car washing are subject to the sales tax and the tax should be paid by the car wash purchasing such items.  If the tax was not paid at the time of purchase of the items, those purchases must be reported to the District and a use tax paid on the amount of the purchases.

 

426                  CARPET and upholstery cleaning SERIVCES

 

426.1               The sale of or charge for the service of carpet and upholstery cleaning, including the cleaning or dyeing of used rugs, carpets, or upholstery, or for rug repair is subject to sales tax.

 

426.2               Persons operating places of business for the purpose of carpet and upholstery cleaning must report and pay the sales tax measured by the gross proceeds derived from these services.

 

426.3               Materials such as thread and yarn which become an integral part of the rug, carpet, or upholstery subject to cleaning are exempt from tax when sold to the carpet and upholstery cleaners as sales for resale.

 

426.4               Materials such as detergents, cleaning fluids, and other consumable supplies used in connection with the services of carpet and upholstery cleaning are subject to the sales tax, and the tax should be paid by the cleaners purchasing such items. If the tax was not paid at the time of purchase of the items, those purchases must be reported to the District and a use tax paid on the amount of the purchases.

 

426.5               For purposes of this section, “carpet and upholstery cleaning” includes, but is not limited to:

 

(a)        Dry cleaning services for rugs;

 

(b)        Carpet, rug, or upholstery cleaning, dying, and repairing services, including carpet cleaning and repairing performed in commercial or residential structures;

 

(c)        Treating or applying protective chemicals to carpet, upholstery, or rugs; and

 

(d)       Binding and serging of area rugs.

 

427                  HEALTH-CLUB SERVICES  

 

427.1               The sale of or charge for the services of a health club subject to sales and use tax.

 

427.2               Health-club means a fitness club, fitness center, or gym the purpose of which is physical exercise, and includes the use of, access to, or membership to, an athletic club, fitness center, gym, recreational sports facilities featuring exercise and other active physical fitness conditioning or recreational sports activities including swimming, skating, or racquet sports, or other facility for the purpose of physical exercise.

 

427.3               Charges for sale of or charge for the services of a health club include any amounts paid to participate, enter, use, or access the health club, including but not limited to membership dues, drop-in fees, and entrance fees.

 

427.4               Charges for the use of facilities for non-fitness-related purposes, including room rentals, or for other services or charges covered by a separate contract with the user, such as a lease or occupancy agreement, are not subject to tax.

 

427.5               As sales by nonprofit organizations are not granted a general sales tax exemption, sales by nonprofit organizations of the services of a health club will be subject to tax unless the purchaser holds a valid exemption or resale certificate.

 

427.6               Examples of taxable charges for health-club services include, but are not limited to:

 

(a)        A monthly membership to a fitness center to use and access the fitness center’s strength training equipment.

 

(b)        A daily entrance fee to a tennis club for access to the club’s tennis courts.

 

(c)        A charge for a multi-lesson pass to a yoga studio for access to classes with the studio’s yoga instructors.

 

(d)       A gate charge to recreational center for use of the recreation center’s rock climbing area.

 

(e)        A drop-in charge at gymnasium for participation in a group fitness class.

 

(f)        A charge by a fitness center for personal training services performed at the fitness center by an employee of the fitness center.

 

427.7               Charges which do not constitute health-club services are not subject to sales tax.  For example, if:

 

(a)        A business organizes a ‘Get Fit Challenge’ for its employees, charging each participating employee dues, the fees collected will not be subject to tax.    

 

(b)        A gym charges fees for a lounge pool membership, where the lounge pool membership is not for physical exercise, such fee will not be subject to tax.

 

(c)        A spa charges clients for services which are not fitness-related, such fees will not be subject to tax.

 

427.8               Where a personal trainer is hired by an individual to perform fitness related services outside of a health club, the fees collected will not be subject to tax.

 

427.9               Whether acting as an employee or independent contractor, when a personal trainer is hired to perform fitness related services at a health club, regardless of who owns the health club, any fees collected will be subject to tax.

 

427.10             The entire bundled charge for both taxable health-club services and nontaxable services will be presumed taxable if a primary purpose of the transaction is the sale of the taxable health-club services. 

 

(a)                This presumption may be overcome by the health-club services provider at the time of the transaction by separately stating to the customer a reasonable charge for the taxable services. 

 

(b)               The service provider's books must support the apportionment between taxable and nontaxable services based on the cost of providing the service or on a comparison to the normal charge for each service if provided alone.

 

(c)                If the charge for nontaxable services is unreasonable when considering the cost of providing the service or a comparable charge made in the industry for each service, the Deputy Chief Financial Officer will adjust the charges and assess additional tax, penalty, and interest on the taxable services.

 

428                  Service of storage of household goods

 

428.1               The sale of or charge for the service of the storage of household goods through renting or leasing space for self-storage, including rooms, compartments, lockers, containers, or outdoor space, except general merchandise warehousing and storage and coin-operated lockers, are subject to sales and use tax.

 

428.2               The total amount charged for providing service of the storage of household goods is subject to tax. Charges associated with the cost of service of the storage of household goods, such as utilities, insurance, pick-up, delivery, locks or keys, are part of the taxable purchase price. Charges that the facility incurs as a result of a tenant who fails to pay including, but not limited to, auction fees and cut-lock fees are not part of the taxable purchase price. A security deposit is not part of the taxable purchase price unless it is converted into a rental payment.

 

428.3               “Household goods” means tangible personal property, including goods and products, used within households.  “Household goods” include, but are not limited to, consumer electronics, appliances, tools, housewares, and home furnishings.

 

428.4               The following are examples of taxable storage of household goods:

 

(a)                Rental of storage lockers or storage  units in apartment complexes if the locker or unit is utilized at the option of a tenant upon payment of a fee in addition to the apartment rental; and

 

(b)               Rental of a storage unit for the purpose of storing household goods in which the consumer customarily stores and removes the consumer's household goods on a self-service basis.

 

428.5               The following are examples of services which are not taxable storage of household goods:

 

(a)        General warehousing and storage, where the warehouse is engaged in the operation of receiving, handling, and storing property for others using the warehouse's staff and equipment, and does not allow the consumer of the service separate access to the storage area used to hold the property;

 

(b)        Monthly rental amounts for indoor storage of a boat during the winter months.

 

429                  TANNING SERVICES 

 

429.1               The sale of or charge for tanning services are subject to sales and use tax.

 

429.2               Tanning services means providing individuals a manmade tan, including sun tanning and spray tanning, whether or not assisted by an employee of the tanning business.

 

429.3               Charges for tanning services include any amounts paid for the tanning service, including but not limited to monthly membership fees and appointment fees.