LINCOLN — Supporters of Nebraska's tanning salons have twice failed to win a tax break from state lawmakers.
Now they are trying another way to save the businesses about $850,000 in annual sales taxes. But their approach has generated heat from those who say it thwarts the Legislature's role in setting tax policy.
The Nebraska Department of Revenue has proposed deleting tanning salons from the list of businesses that must pay state and local sales taxes. The department will hold a public hearing on the proposal Aug. 22 in Lincoln.
Proponents of the change argue that in 1988, the Revenue Department improperly classified indoor tanning as a form of entertainment, amusement or recreation. The state collects sales tax on the admission charged for entertainment or recreational activities.
“Tanning services are truly services, not entertainment or amusement,” said Sen. Jim Smith of Papillion, who strongly supported bills to exempt the salons in 2011 and 2012. He argued that tanning should be free from sales tax, much like haircuts and manicures.
Smith also obtained a legal opinion from Attorney General Jon Bruning, which concluded that while the tanning salons were not necessarily misclassified, it was within the tax commissioner's authority to amend the regulation.
Sen. Jeremy Nordquist of Omaha, who wants more regulation of indoor tanning because he considers it a health threat, said the maneuver is just an administrative end around. When the tanning bills came up in recent years, they were soundly defeated.
If the tax exemption is granted, Nordquist said he will introduce a bill in 2014 to reimpose the tanning tax.
“It makes no sense from a public policy standpoint,” he said. “It's some well-connected, well-funded people trying to carve out a little tax break for themselves.
Although Gov. Dave Heineman has voiced support for the tanning industry in the past, he was not directly involved in the current proposal, said his spokeswoman, Jen Rae Wang. Because the governor's son owns a health club that includes tanning beds, Heineman wanted to avoid a potential conflict of interest, she explained.
Former Lt. Gov. Rick Sheehy did much of the work on the issue, Wang said. After Sheehy resigned in February, Lt. Gov. Lavon Heidemann took it over.
Tax Commissioner Doug Ewald, in turn, made the proposal to strike tanning salons from the sales tax list.
The owner of one of the state's largest indoor tanning businesses also worked to make the case for the regulation change. Barton Bonn of Omaha said he hired an attorney to research the history of the tanning tax and provide a memorandum to the attorney general.
“We came to the conclusion we should have never been taxed in the first place,” said Bonn, who runs Ashley Lynn's Tanning. “Now we're just trying to get that corrected.
Tanning businesses have been struggling in Nebraska since 2010, when the Affordable Care Act imposed a 10 percent federal excise tax on salons, Bonn said. State and local sales taxes in Nebraska add up to an additional 7 percent of tax on the gross sales of salons.
Since the federal tax took effect, nearly half the state's tanning businesses have closed, Bonn said. At the start of the year, 111 remained open, he said.
Most other states do not charge sales tax on tanning salons, Bonn said. The combination of federal, state and local taxes in Nebraska makes it even harder on the businesses.
“It's why so many businesses in my industry have gone out of business,” he said.
The proposed exemption comes at a time when the 14-senator Tax Modernization Commission is studying Nebraska's tax system. Kearney Sen. Galen Hadley, who leads the commission, said it's not premature to act on the tanning tax.
“If we're treating a taxpayer wrongly, from a legal standpoint, we should do something about it,” he said.
Ending sales taxes on tanning establishments doesn't sit well with Dr. David Watts, an Omaha dermatologist who treats patients with skin cancer. He has advocated stricter regulation of the industry, particularly when it comes to marketing to teenagers. The Legislature took public testimony on a bill this year that would prohibit commercial salons from serving customers younger than 18. The bill remains in committee and could be considered in the 2014 session.
“Anything that makes it easier to deliver those services to kids bothers me,” Watts said.