Iowa Department of Revenue: Spinning Classes Subject to Sales Tax, but Not Pilates.

Posted on 11/05/2019 at 03:50 PM by Cody Edwards

In the latest head scratcher, through a pair of Declaratory Orders (“DO”) issued within eight months of each other, the Iowa Department of Revenue has determined that Pilates classes and certain spinning (cycling) classes are treated differently for purposes of sales tax.  According to the Department, one is taxable “commercial recreation” and the other is nontaxable “instruction in recreational activities.” I’ll let you guess. 

The facts of the latest DO, which relates to spinning classes that incorporate weight training, are substantially similar the facts of the Pilates DO. In each DO, the facility offered instructor-led classes on a per-class or membership basis. In each, the members could not use the premises or exercise equipment outside of an instructor-led class. In each, the instructors were required to undergo training in their respective specialties and to be certified; the Pilates certification required at least 450 hours of training and the spinning instruction required and audition and passage of a four-day, eight-hour-per-day boot camp.  Finally, each service provided different levels of classes. 

The starting point for the analysis is Iowa Code § 423.2(6)(v), which imposes sales tax on the price of “[g]olf and country clubs and all commercial recreation.”  According to the Department’s administrative rules, “recreation” includes “all activities pursued for pleasure, including sports, games and activities which promote physical fitness, but shall not include admissions” taxed in other places in the Iowa Code.   IAC r. 701—26.24.  The rules distinguish between “commercial recreation” and “instruction in recreational activities.”  Instruction in recreational activities is not subject to sales tax if all of the following criteria are met:

  1. The instruction charges are contracted for separately, separately billed, and reasonable in amount when compared to the taxable charges of providing facilities for recreation.
  2. The persons receiving the instruction must be under the guidance and direction of a person training them in how to perform the recreational activity. If the persons receiving what purports to be “instruction” are allowed any substantial amount of time to pursue recreational activities, no instruction is taking place. The instruction should be received in what would ordinarily be thought of as a “class” with a fixed time and place for meeting. The instruction need not be received in what would ordinarily be thought of as a “classroom,” but the instructor and the persons receiving instruction should be segregated from persons engaging in recreational activity insofar as this is possible. Instruction may still occur if complete or partial segregation is impossible.
  3. The “instruction” must impart to the learner a level of knowledge or skill in the recreational activity which would not be known to the ordinary person engaging in the recreational activity without instruction. Also, the person providing the instruction must have received some special training in the recreational activity taught if charges for that person’s instruction are to be exempt from tax.

In analyzing the taxability of the spinning class, the Department—correctly—glosses over the 1st and 2nd requirements of instruction in recreational activity, above, since these requirements are clearly met.  The Department spends the majority of its analysis on the 3rd requirement.  

In analyzing the 3rd requirement relative to the spinning class, the Department states that “[n]o instructional element ‘[i]mparts to the learner a level of knowledge or skill in the recreational activity which would not be known to the ordinary person engaging in the recreational activity without instruction.’” According to the Department, “[o]rdinary people know, without instruction, how to ride a stationary exercise bike.”  While that may be true, the spinning classes at issue involve much more than simply “rid[ing] a stationary exercise bike.”  According to the website, the spinning classes involve “strength, endurance, challenges, hills, and drills.” Indeed, the spinning instructors guide the students on spin bike pace and resistance and through weight training and stretching routines, none of which are “known to the ordinary person.”

According to the spinning DO, the spinning instructors must be trained to “inform members on the proper form for riding and core and upper body exercises performed while riding; and guide members to ride and for core and upper boy exercises performed while riding.”  Based on this, It appears that the spinning instructors are expected to teach their students more than “how to ride a stationary bike.”  The expectations of the spinning instructors seems very similar to what occurs at a Pilates class. According to the Pilates DO, “[a] Pilates routine generally includes exercises that promotes core strength, stability, muscle control and endurance, including exercises that stress proper posture and movement patterns and balanced flexibility.” Indeed, a review of YouTube videos of the spinning and Pilates classes at issue does not show a discernable difference in the amount of instruction of students.

Expecting questions about reconciling the Pilates DO from the spinning DO, the Department tries to distinguish the two.  The Department argues that the Pilates DO “described a specialized exercise regime that would not be known to an ordinary person absent the instruction.”  As noted above, instruction at the spinning classes at issue is not merely instructing the students to “ride a stationary bike” as the Department posits.  The Department then tries to distinguish the DOs by the amount and type of training required of the instructors: according to the Department, the Pilates instructors “were also required to complete over 10 times more training in a specialized exercise regime than the hours required to be” a spinning instructor and “the training to become a Pilates instructor [is qualitatively different] from the training in this case”.  The difference in training should not matter.  Conspicuously absent from the Department’s administrative rules is any quantitative or qualitative requirement for the training the instructors receive (“the person providing the instruction must have received some special training.”)

Finally, let’s not forget that the classification of spinning as “recreation” is premised on the assumption that the activity is “pursued for pleasure,” which yours truly—a cyclist—may dispute.    

 

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