Opinion ID: 1382721
Heading Depth: 1
Heading Rank: 3

Heading: fitness edge is a place of recreation and was properly subject to sales tax on the fees paid by its clients

Text: Section 144.020.1(2) imposes sales tax on fees paid at retail in or to any place of amusement, entertainment or recreation, games and athletic events. To find a transaction taxable under this provision two elements are essential,  that there be fees or charges and that they be paid in or to a place of amusement [entertainment or recreation]. L & R Distrib., Inc. v. Missouri Dep't of Revenue, 529 S.W.2d 375, 378 (Mo.1975). As the Director notes, a location in which amusement or recreational activities comprise more than a de minimus portion of the business activities occurring at that location is considered a place of amusement or recreation under this provision. See Spudich v. Director of Revenue, 745 S.W.2d 677, 682 (Mo. banc 1988); Wilson's Total Fitness v. Director of Revenue, 38 S.W.3d 424, 426 (Mo. banc 2001). Fitness Edge concedes that it charges fees, but it argues that the fees it charges are for its personal training services rather than for the recreational use of its fitness training facility or the exercise equipment and other amenities contained therein and that personal training services are not made subject to sales tax under section 144.020.2(2). Were this case governed by Columbia Athletic Club v. Director of Revenue, 961 S.W.2d 806 (Mo. banc 1998), then Fitness Edge's argument might be meritorious. In Columbia Athletic Club , this Court held that application of section 144.020.2(2) turns on the primary purpose of the facility involved. Id. at 810. Under Columbia Athletic Club , the critical issue . . . is whether the primary purpose of Appellant's fitness center in facilitating exercise is to provide health benefits or to provide recreation. Id. Columbia Athletic Club recognized that the line between taxable and nontaxable services under this test was a fine one. Id. Three years later, Wilson's Total Fitness Center, Inc., held that the fine line that Columbia Athletic Club attempted to draw between exercise that is primarily focused on health benefits and exercise that is primarily focused on recreation was unworkable in fact because the facilities could not be distinguished in a meaningful and consistent manner. 38 S.W.3d at 426. Accordingly, this Court reinstated the  de minimus test previously set out in Spudich ,  under which, unless the exercise occurring there is de minimus, all [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. Id. Acknowledging that Wilson's rejected the primary purpose test, Fitness Edge tries mightily to avoid using the word primarily when describing the purpose of the fitness services it provides. Without discounting the valuable health and nutrition personal training services available at Fitness Edge, however, the record supports that its clients' use of its exercise equipment (albeit with the assistance of a personal trainer) and of the many other amenities provided in the state-of-the-art facility is more than de minimus. This Court will not resurrect the distinction it rejected in Wilson's between recreational and health-related fitness facilities; as Wilson's noted and as this case further demonstrates, such a distinction is unworkable as a practical matter. Wilson's, 38 S.W.3d at 426. [3] Fitness Edge also notes that, even if the nature of its personal training services were not themselves sufficient to distinguish Fitness Edge from the place of recreation at issue in Wilson's , the fitness facility at issue in Wilson's was a club to which clients paid membership fees. By contrast, Fitness Edge does not charge membership fees and is not a club. Further, it is not just a workout center, but a top level fitness facility at which clients are given nutritional and lifestyle advice as an essential part of its customized program, and the clients spend the vast majority of their time working directly with personal trainers on individualized workout plans rather than engaging in the type of self-directed exercise that is available at other fitness facilities. Although Fitness Edge is correct that these do constitute factual distinctions between what the facilities offer their clients, this Court does not find that those distinctions make a legal difference on the question whether Fitness Edge is subject to tax under section 144.020.1(2). That section does not state that it taxes clubs, or membership facilities, or exercise equipment. It 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. Rather, the statute states that the tax is due for fees paid to, or in any place of amusement, entertainment or recreation . . . for taxable services offered at retail.
Fitness Edge makes two additional arguments based on the fact that the type of services its personal trainers provide would not be subject to tax under section 144.020.1(2) if the services were provided to the same clients at locations other than a facility owned by the taxpayer. Specifically, Fitness Edge notes that when Mr. Jaudes provided personal training services to the same clients at other fitness facilities not owned by him, he did not have to pay sales tax on the fees, nor did the facility at which he worked. Therefore, it argues, these fees should not be subject to tax when the services are provided at Fitness Edge. As noted above, however, when Mr. Jaudes opened Fitness Edge and began providing his clients with training services for which they paid fees to the facility rather than their trainer, Fitness Edge came within the parameters of section 144.020.1(2) as a place of recreation that receives fees for taxable services at retail. Fitness Edge argues that if section 144.020.1(2) is interpreted to permit it to be taxed when those who provide fitness services as independent contractors would not be taxed, then the statute violates the uniformity requirement of article X, section 3 of the Missouri Constitution. That section states that taxes shall be uniform upon the same class or subclass of subjects within the territorial limits of the authority levying the tax. Mo. Const. art. X, § 3. The uniformity provision does not prohibit all distinctions among taxpayers; it prohibits only distinctions between those in the same class or subclass. See McKinley Iron, Inc. v. Director of Revenue, 888 S.W.2d 705, 708 (Mo. banc 1994) (The state . . . is not prohibited from treating one class of taxpayer differently from others). In order to comply with this provision, [i]t is only necessary that there be a reasonable basis for the . . . differentiation and that all persons similarly situated . . . be treated alike. Bopp v. Spainhower, 519 S.W.2d 281, 289 (Mo. banc 1975). [4] Gammaitoni v. Director of Revenue, 786 S.W.2d 126, 130-31 (Mo. banc 1990), is instructive. In that case, the taxpayer contested whether its sale of advertising could be subject to tax when similar sales by advertising agencies and broadcasting stations were exempt from tax, arguing that a taxing statute may not impose tax on some businesses and not on others for conducting what is, in essence, the same commercial activity. Id. at 130. This Court rejected this argument, concluding that the distinction drawn between the different natures of the entities that were or were not subject to tax was a reasonable one and, therefore, not constitutionally objectionable. Id. at 131. Similarly here, the relevant constitutional inquiry is whether the statutory distinction between those personal trainers who provide fitness training services in a place of recreation and those who provide it elsewhere is a reasonable or rational one. Training services provided by an independent contractor are different in kind from a business that offers training services along with the provision of exercise equipment, lockers, and other amenities at a permanent, established fitness facility. Distinguishing between these different business models is within the considerable freedom that the legislature enjoys in making classifications in order to produce reasonable systems of taxation. Gammaitoni, 786 S.W.2d at 131.