TAX NEWS - JUNE 2010

U.S. Tax: Beginning July 1, tanning salon customers will have to pay "sin tax"

By MICHAEL L. DIAMOND -- Like most of the visitors to Simply Sun, Cindy Weyandt never considered her trips to the Toms River tanning salon to be a vice. She would sit under an ultraviolet lamp and emerge looking so bronzed and healthy that she didn't need to wear makeup.

But Weyandt and tanning salon customers nationwide soon will be charged extra for using a service that regulators say could cause skin cancer. Beginning July 1, they will pay a 10 percent tax on tanning services that involve ultraviolet light.

"They don't tax Mother Nature, and the sun tans you," Weyandt, a 52-year-old Toms River resident, said in protest. "Why pick on us?"

Congress, trying to raise money to pay for health care reform, is turning to tanning salons, irritating businesses and customers, who say they are being unfairly targeted.

The move isn't unusual. Government in times of war and recession long has scrambled for the moral high ground and slapped taxes on activities that might be fun but can be harmful, whether it is tobacco or tanning.

For some, the idea is an effective way to generate revenue and protect the public. For others, it is a heavy-handed measure that hits the poor harder than the rich. But the very idea puts the government in a strange position. The more people sin, the more government benefits.

"It is a temptation that no government has ever resisted, and that sure includes ours," said Joel Newman, a professor at Wake Forest School of Law in Winston-Salem, N.C. "Public policy and tax policy are heavily intertwined."

Tanning salons feel particularly aggrieved. New Jersey in 2006 decided to add a 7 percent sales tax to tanning salons for all of their products. This year Congress, in its debate over how to pay for the $940 billion health care bill, dropped an idea to tax cosmetic procedures such as Botox and added the tax on ultraviolet services instead. The payoff: $2.7 billion over 10 years, lawmakers said.

Whether lying in a tanning bed to catch a few rays can be categorized as a sin is debatable.

The U.S. Food and Drug Administration said exposure to ultraviolet radiation increases the risk for skin cancer, causes premature aging, suppresses the immune system and can cause eye damage. The indoor tanning industry counters that it has health benefits, too, particularly when used in moderation.

No matter: The cost of a $10 session at Simply Sun will rise to $11. The cost of a $50 monthly package will rise to $55. And owner Lori Vogel said it may be a sharp enough increase that customers, still recovering from the recession, find their tanning bed visits expendable.

"A lot of people right now, they're not penny-pinchers, but the economy isn't what it was several years ago," Vogel said. "With this 10 percent tax on tanning, that also is going to force people to cut back on the amount of time they tan."

Tanning salons aren't alone. Government entities nationwide are facing budget deficits and are broadening the definition of traditional sin taxes. Maine enacted a sales tax on candy. Colorado removed sales tax exemptions on soda and candy. And at least 12 states last year proposed soda taxes but didn't take action, according to the National Conference of State Legislatures.


Nothing new

It is part of an old story, particularly when times are tough. And it hasn't always gone over well. Congress, for instance, taxed distilled spirits, tobacco and snuff to pay off the Revolutionary War, eventually touching off the Whiskey Rebellion of 1794 in Pennsylvania.

Since then, experts said, an economic theory emerged that supports the idea. It argues that the actual cost of some items is more than what consumers pay for them. And the only way to reflect that cost is to add a tax to it.

Take cigarettes. Smokers may pay the manufacturer's suggested retail price, but they don't pay for the health problems that cigarettes can cause. Everyone else does, through higher health insurance premiums. The solution: Government taxes cigarettes.

That strategy comes with a risk. Government could lose revenue if people live healthier lifestyles. But economists said the government would save money in the long run, presumably by saving money from lower health care costs.

And some prefer that idea to, say, expanding lotteries and gambling and actively encouraging people to partake in behavior that could become destructive.

"Cigarette smoking in the long run costs much more to society than the revenue that would be generated from the taxes," said George Loewenstein, an economics professor at Carnegie Mellon University in Pittsburgh. "That would be a wonderful outcome, if everybody stopped smoking."

It has become a politically palatable way to raise taxes. Few nonsmokers or those who don't use tanning beds have expressed outrage. Walking into a fitness center recently, Dean Helstowski, 39, a Toms River teacher, was presented a choice. Would he make cuts in education or raise taxes on cigarettes and alcohol?

"I'd rather see (sin taxes) than make cuts that affect kids," he said.

New Jersey lawmakers haven't been shy about taking that road. The state's cigarette tax has risen from 80 cents a pack in 2000 to $2.70 today. Its liquor tax has risen from $4.40 a gallon in 2000 to $5.50 a gallon today. And its wine tax has risen from 70 cents a gallon in 2000 to 88 cents a gallon today, according to the Tax Foundation, a Washington, D.C., research group.

Advocates argue sin taxes have served their purposes well. Researchers say longtime cigarette smokers have trouble kicking the habit no matter what the price, because nicotine is addictive. But younger smokers with little money to spend may turn away from smoking out of sticker shock before they make it a habit.

"As a public health strategy, it's very effective," said Joel Cantor, director of the Rutgers Center for State Health Policy in New Brunswick.

Indeed, at Simply Sun, Tyanna Hughes and Liz Mendola, both 18, waited their turn for tanning beds. They are high school students who work part-time jobs and make less than $10 an hour. They said they would be sensitive to a price increase, but there are other ways to get ultraviolet rays.

"If it's more expensive, I'll lay out in the sun," Hughes said.

Not everyone agrees sin taxes are the right way to close budget holes. They are considered regressive taxes that hit lower-income people harder than wealthier people. And they raise a question: Where do you draw the line? Should you tax guns or bullets to cut down on crime? Gasoline to become more environmentally friendly? Television to encourage more exercise?

We're all sinners, said Assemblyman Declan O'Scanlon, R-Monmouth, and a member of the budget committee. He added there has been no discussion of raising sin taxes to help fill an $11 billion budget shortfall.

"I have heard not a peep about it, and I don't expect to," O'Scanlon said. "We're already the highest-taxed state in the nation. It doesn't matter if you call it a sin tax, a fee, a toll, an income tax. All of that will simply add to that burden."

For now, it appears that tanning salon customers such as Cindy Weyandt will have just one decision to make in July. Will they reach deeper into their pockets and fork over another 10 percent? Or will they decide the benefits don't outweigh the expense?

"I think it's ridiculous, I really do," Weyandt said of the tax. "But will I still do it? Yes."