New Exemption on Missouri Sales Tax on Fees Paid to a Place of Amusement or Recreation
Owners and customers of dance, yoga, cooking, karate and other recreational schools could soon benefit from recently passed state legislation. Earlier this year, the state legislature passed Senate Bill 1025, which amends Section 144.020.1(2) to allow for a sales tax exclusion for “amounts paid for any instructional class.” Currently, Section 144.020.1(2) imposes sales tax on “fees paid to … any place of amusement, entertainment or recreation.”
Senate Bill 1025 becomes effective on October 14, 2016.
Defining ‘instructional class’ unclear
Although the new exclusion may seem straightforward — fees for an instructional class will not be subject to sales tax — there is uncertainty as to what is considered an instructional class. The statute defines “instructional class” as “any class, lesson, or instruction intended or used for teaching.”
Presumably this definition was meant to apply to dance lessons, which will effectively overturn the recent court decision in Miss Dianna’s School of Dance v. Director of Revenue (2016). In that case, the Missouri Supreme Court held that fees paid to dance studios are taxable fees paid to a place of amusement. The dance studio claimed that it was not operating a place of amusement or recreation; its primary purpose was to educate the dancers. The Court explained, “It makes no difference that participants go to Miss Dianna’s for dance classes and not ‘self-directed dancing’” and held that the dance studio was a place of amusement or recreation.
Impact on other businesses to be determined
It is yet to be determined how this new legislation will impact other businesses, such as gyms or fitness centers. In Wilson’s Total Fitness Center, Inc. v. Director of Revenue (2001), the Missouri Supreme Court held, “[a]thletic and exercise or fitness clubs are places of recreation for the purposes of section 144.020.1(2), and the fees paid to them are subject to sales tax.”
In Michael Jaudes Fitness Edge, Inc. v. Director of Revenue (2008), the Missouri Supreme Court held that fees paid to a place of amusement for personal training services were subject to tax. The fitness center charged its members fees for using the facility under the supervision of a personal trainer. The Court held that Section 144.020.1(2) “draws no distinction between whether a person exercises pursuant to a plan of her own devising or under the immediate and direct supervision of a fitness trainer. Tax is due for ‘fees paid to, or in any place of amusement, entertainment or recreation ...’ for taxable services offered at retail.”
Unanswered questions for exemption
There are unanswered questions regarding the impact of Senate Bill 1025, including how much instruction is required for a business to qualify for this exemption. The application of this new exemption will evolve over time and likely lead to further litigation.