Should You Pay Tax to Tap it Back?

Whether you are feeling the Bern, or the burn, New Yorkers cannot escape bureaucrats with a passion for taxation.

For many New Yorkers, finding time to fit in a workout does not come easy. Classes like Flywheel, Pure Barre and SoulCycle, however, have facilitated under-60-minute workout regimes where busy urbanites can simultaneously break a sweat, socialize and even network with other devotees. Unfortunately for us, our friends up the Hudson are banging down the door, turning on the lights and breaking our chi. These studio classes, some having been in operation for almost ten years, are suddenly required to charge clients a 4.5% local sales tax.

In 2013, New York State Attorney General Eric Schneiderman subpoenaed fitness studios to release all tax statements since 2012. The state went on the warpath when auditors realized certain fitness studios were not contributing the 4.5% health & fitness local sales tax. According to the New York State Tax Code, exemptions are limited to studios that provide only yoga classes, as yoga is not a “weight control salon, health salon or gymnasium.”[1] Athletic club membership dues are also exempt from the local sales tax, as the state views this transaction as an investment, rather than a sale of services. Despite such technicalities, all of these entities provide New Yorkers with the same outlet – improving mental and physical health.

Soul Cycle’s Senior Vice President of Public Relations, Gabby Cohen, stated the franchise “was not privy to where the tax revenue would go.” According to Former New York City Comptroller John C. Liu, “local sales tax revenues are generally allocated to city coffers[2].” The New York State Attorney General’s Office declined to comment.

To determine what services may or may not be subject to city sales tax, Liu highlights that a number of factors are to be taken into account. “Fitness classes become a gray area. You have to weigh whether these classes are accessible to a broad demographic, contribute to public health and what the profit margins are.”

Given the popularity of these growing franchises, it is no wonder New York tax collectors targeted them for additional revenue. Furthermore, these rapidly growing businesses continue to invest in city commercial property and employ local sales and fitness representatives. With another year of Albany’s balanced budget and New York City’s FY 2017 multi-billion dollar surplus, would forgoing the health and fitness local sales tax really break the bank?

[1] Section 11-2002(a) of the NYS Administrative Code.

[2] Coffers are the city/state’s general fund.

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