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Apr 25, 2014 - 11:45am

Tanning Tax Is Not Burning Up Health Reform Coffers

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tanning tax
tanning tax
Photo: Jonathan Alcorn/Bloomberg
Photo: Jonathan Alcorn/Bloomberg

A tanning tax meant to offset some of the expenses of Obamacare is not so hot after all.

The 10% federal sales tax on tanning salons has generated less than half the $200 million the government predicted it would, according to Politico:

At the time, it was projected to raise $2.7 billion over a decade, according to the Joint Committee on Taxation — a tiny fraction of the approximately $900 billion in budget savings woven into the bill to cover the cost of its insurance expansion.

The tanning tax would generate less than $50 million the first year, JCT said, but collections would ramp up to $200 million in each of the next two years before settling in at $300 million annually.

That didn’t happen.

The government collected just $15 million in 2010, according to IRS data. By September 2011, a government watchdog was warning receipts were lagging behind expectations. They climbed to $86 million in 2011 and to $91 million in 2012, according to the IRS.

Industry experts at the time said the new tax would likely hurt profits at thousands of small independent tanning salons across the country, and even lead to fewer customers and ultimately, salon closures.

Which may explain why the government has collected less than projected, according to Politico.

“It’s effectively a price increase for our customers,” said Barton Bonn, head of the American Suntanning Association who owns 19 tanning salons. “Anybody knows that if you increase the price on a product or service, some people are not going to show up after the price increase, and that’s what occurred”…

An average of just 10,300 tax forms reporting the quarterly tax were coming in, the Treasury Department’s Inspector General for Tax Administration warned in 2011, even though the industry estimated there were 25,000 businesses providing tanning services…

John Overstreet, who runs the Indoor Tanning Association, points to IRS figures showing the number of tax forms reporting paying the tax fell by 13 percent between March 2011 and March 2012.

“You don’t file a return and then quit filing returns unless you’re out of business,” he said.

The government began collecting the so-called “Snooki tax” in July 2010. The tax garnered that nickname courtesy of Nicole “Snooki” Polizzi, the super-naturally tan star of MTV’s now cancelled Jersey Shore and conscientious objector of tanning beds after the tax was imposed.

The tanning tax is just one of the health reform law’s many funding streams, as my colleague Sean Hackbarth recently noted.

At the beginning of 2014, the health care law’s tax burden increased again when the Health Insurance Tax (HIT), a tax on health plans sold on the fully-insured market, went into effect. Its $8 billion in new taxes in 2014 (which will rise by 41% in 2015 and reach $14.3 billion in 2018) make health plans more expensive for small businesses that make up 88% of the fully-insured market. Small business owners have told Congress that the premiums hikes from the tax will be “catastrophic” and “devastating.”

Extra taxes, whether it’s on tanning services or medical devices, rarely make people want to fist pump. 

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About the Author

Sheryll Poe is a former senior writer at the U.S. Chamber, who covered public policies affecting businesses including the three "T's" - transportation, trade and taxes.

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