VOL. 132 | NO. 103 | Wednesday, May 24, 2017
Small Fitness Centers Fight Tax Exemption for Larger Competitors
JODY CALLAHAN, Special to The Daily News
Jeff Rose and his wife Nancy sank their entire life savings, more than $500,000, into opening the Orangetheory Fitness center in Lakeland in 2015.
While business is going well, the Roses say, they still feel that they are at a competitive disadvantage with the larger fitness centers in the Memphis area, thanks to an exemption in a state taxing law.
Under the current iteration of that law, all such centers with less than 15,000 square feet are required to charge their customers sales tax on monthly memberships. But those over that square footage can apply for an exemption to avoid that tax.
That’s unfair, Jeff Rose said, and is one of the reasons why he and other Orangetheory officials sought legislative help to change that law.
State Sen. Mark Norris and State Rep. Ron Lollar sponsored bills in the legislature that would have eliminated the sales tax entirely from such memberships.
However, the Senate version of the bill was removed from the agenda in committee near the end of the ession, meaning it’s dead for this year as the Legislature has adjourned. It’s possible that the measures could be reintroduced in the next session, which starts in January.
“I’m going to vote some people out of office if I can, quite frankly,” an angry Rose said. “I’m extremely disappointed, and all they’re doing is trying to put me out of business. That’s all they’re doing.
“They’ve put small businesses in jeopardy all across the state of Tennessee. And they’ve ignored the effect of what they’re doing. If that’s their decision, that’s their decision, but it will have consequences.”
Neither Norris nor Lollar responded to multiple requests for comment about the bills. Rose also said he has been unable to reach the legislators.
Rose and other owners of fitness centers argue that the bill, with the exemption for larger facilities, puts smaller centers at a competitive disadvantage.
Why, they argue, would a customer pay local sales tax of 9.25 percent on a membership with a smaller center when they could avoid that entirely by signing up with one of the larger places?
“It cuts into our profit directly,” said Mark Akin, co-owner of the Envision center Downtown. “It’s going to have a number of impacts across the business, whether it’s our ability to update equipment, create a better experience for our members, hire new help, the obvious things that a reduction in profit creates. What’s most ridiculous is why is that law there? (What if) small music venues have to pay taxes that FedExForum doesn’t have to pay? Does the sandwich shop around my house have to pay a tax that Applebee’s doesn’t? I don’t get why that’s in place. Obviously, it’s incredibly unfair.”
According to an analysis by the legislature’s Fiscal Review Committee, the bill would decrease total tax revenues by $16,724,700 – $12,435,400 from the state and $4,289,300 from local revenues.
That last number caused some consternation in Mayor Jim Strickland’s administration.
“I’m concerned about the bill because it would have a negative financial impact on the city. My team is in constant contact with our lobbyist in Nashville and we’re monitoring this closely,” Strickland said in a statement.
One alternative to eliminating the sales tax entirely would be to eliminate the exemption, which, theoretically, would level the playing field.
In a video posted to the state Legislature’s website, Norris said that was a possibility to address what he also called a competitive disadvantage.
“It has a high price tag, and I suspect a better way to approach this in the final analysis would be to deal with the fact there is a discriminatory tax between the two,” Norris said, when introducing the bill. “That is an option. We have 31 gyms in Tennessee that are exempt based on size. It just doesn’t compute for us. That would be an option, everyone pays the tax or everyone doesn’t pay the tax.”
Rose said he would prefer that the tax be eliminated altogether, but said he could live with the other option.
“I don’t believe it’s fair trying to tax people trying to improve on their health,” he said. “(But) If you’re going to have to tax, yes, tax everyone. If they get rid of the exemption and charge everybody, at least it will be fair for everybody.”