02 Mar Martial Arts Tax: List of Irregularities and Key Points
Fact Sheet and Key Points
There is a misconception that this is an ‘anti-tax’ story. It is not.
These are the most compelling and outrageous aspects to support each possible story idea. We’ve made the first sentence a ‘teaser’ to make it easy to skim for relevant support materials. All of these are linked to primary sources, can be backed up with documentation at a moment’s notice or shared via Dropbox link.
- Taxation Without Representation! Not a SINGLE martial arts school owner was notified that legislation affecting their businesses was under consideration. Indoor sky-diving and golf were able to testify in their defense…and got exemptions.
- Only 2 1/2 Months to Comply – School owners were given only 2 ½ months notice they were required to raise their prices up to 9.6%! A mid-year implementation is far more typical. Notification was received at most schools on October 19, 2015. The holiday season is the most sensitive time of the year for a membership/service based business. Instead of concentrating on end-of-year, preparing for next year or enjoying time with their families they were forced to raise their prices 10% and figure out why and how this had happened.
- Targeted? Why Martial Arts? Only TWO Changed. ‘Martial arts’ was one of only TWO activities under consider for taxation changing from service to retail yet an email or letter to business license holders couldn’t be sent? Department of Licensing notifies why not Department of Revenue or the Legislature?
- Error: Proper Industry Codes Not Used! In the studies made of the fiscal impact of the proposed law the proper industry codes for martial arts were NOT included at all. No automatic notification was possible because of this issue.
- Attack on and Callous Treatment of Small Businesses. Martial arts schools are the definition of a mom-and-pop shop. Not only are they the business owners they are also the product. This taxation treats these small educational businesses like giant health clubs. A martial art school might typically have 100 members while a health club has 5,000 to 10,000. They cannot lose 10% of their clientele overnight and survive!
- 6% Mandatory Price Increase! Martial arts changed from taxation as a SERVICE to taxation as a RETAIL SALE under HB1550. This means a change from NO SALES tax to 9.6% overnight! The only way for a martial art school to raise revenue when things go wrong is raise prices or get more students. The government just raised their prices for them and caused a 10% drop in new/existing clients. They have no recourse and not enough time to adapt.
- School Owners Themselves Will Pay LESS taxes while students will pay far more. But we couldn’t find a single school owner who thought it was a good switch. Washington State has a B&O tax that is applied to income regardless of profit. Services are taxed at .015 while retail is taxed at .00417. Martial arts schools are passion projects and students come first.
- Self-defense and character development taxed while sports are tax free? What changed FROM retail sales to taxation like a SERVICE? This means no longer subject to sales tax. Auto racing, baseball, basketball, bike races/rides, carnivals, civil war re-enactments, cricket, croquet, curling, dancing, fencing, gymnastics, hockey, kayaking, lacrosse, land sailing, lawn bowling, motocross, mountain climbing, mud runs, race walks, remote control racing, rodeo riding, rowing, running events, soccer, softball, track and field, triathlons and volleyball.
- Faulty Bill Summaries Kept it a Secret. Legislators DO NOT and CANNOT read the bills they vote on. They use official bill summaries and analysis. Despite martial arts schools being the ONLY set of businesses changing classification this was NOT included in these summaries when HB1550 and HB2539 were under consideration. The vast majority of legislators DID NOT KNOW as a result. This is why the House voted 96-0 to PASS a bill in 2016 to fix this issue.
- Legislators given FAULTY INFORMATION. The method that ensnared martial arts schools in taxation was to include them in the definition of an ‘Athletic or Fitness Facility’ in the new law. In the bill summaries for HB1550 and HB2539 an inaccurate and incomplete definition was provided. It left out the parts mentioning martial arts altogether! Had Legislators been provided the real definition in their bill summary it might have prompted dissent or notification.
- We Have a Legal Case But No Funds to Fight the Government in Court! Legal experts who we’ve consulted have stated we have a GREAT CASE that based on CURRENT law martial arts schools DO NOT FIT THE DEFINITION OF AN ATHLETIC OR FITNESS FACILITY RIGHT NOW. Current law appears to require application of a two-part definition but a martial arts school only fits one half of the description. However, a court date to fight this could be anywhere from 12-36 months away and be astronomically expensive for school owners.
- Yoga, tai chi and chi gong exempt while dozens of similar methods denigrated by law. Two Chinese martial arts methods, tai chi and chi gong, were included in an exemption along with Yoga. Presumably because they had been the subject of DOR Excise Tax Advisories on several occasions which specifically recognized that “physical fitness is a secondary or incidental benefit of these classes…” . Martial arts was also mentioned as the obvious pursuit “…or mastery of the techniques and philosophy with possible advancement in levels of achievement usually associated with martial arts.” …being the actual purpose.
- What do they have against martial arts and self defense? ‘Martial arts’/self defense was mentioned alongside yoga, tai chi and chi gong in these DOR Tax Advisories so why were they not also included in the exemption for the very same reasons?
- CURRENT LAW/WAC states martial arts is not a physical fitness service! WAC specifically states martial arts ARE NOT physical fitness services. “…do not include instructional lessons such as those for self-defense, martial arts, yoga, and stress-management.” WAC 458-20-183(2)(1)
- Applying taxation to martial arts schools ignores common sense. NAICIS is the North American Industry Classification System and is used by the State of Washington. Section 61 are Educational Services and includes all martial arts, self defense and yoga. Section 71 are Amusement, Entertainment and Recreation and includes health clubs, sports teams and clubs. An ‘Athletic or Fitness Facility’ is not the same industry as a martial arts school.
- EVERY other instructional activity STILL instructional! Section 61 activities are typically instructional. Martial arts are the only industry recognized to be inherently instructional targeted and treated differently. As already mentioned yoga, tai chi and chi gong continued to be exempt as are swimming, golf, skating, riding and other instruction in NAICIS. These ‘exemptions’ are not really exemptions. They are done to ensure that mistakes aren’t made in applying taxation to instruction according to NAICIS and current law. So why not the same for martial arts?
- The original mistake happened decades ago. Decades ago martial arts, yoga and self-defense were included under “Amusement, Recreation and Physical Fitness Services” in state law for lack of a better place to put them. This is Section 71 of NAICIS and is called ‘Amusement, Entertainment and Recreation’.
- Martial arts ARE special activities and DIFFERENT. Psychologists agree. Self-defense training, bully defense, anti-abduction, etc… are certainly not AMUSING, ENTERTAINING or ‘recreational’ types of activities. Martial arts and self defense are completely different types of activities from everything else on the list of activities affected.(except yoga, tai chi and chi gong) They address and deal with personal SAFETY issues. Psychologists almost universally accepts Maslow’s Hierarchy of human needs. After physiological needs of food, shelter and sleep are met SAFETY is the next need to be achieved. The theory is that until safety needs are met needs for belongingness and love, esteem and personal growth cannot be achieved. This is why teachers recommend martial arts for kids dealing with bullying issues.
- Creates Unfair Advantage For Government Owned Community Centers. Current law leads to the absurd situation where the exact same class held in a community center is NOT taxable while the school across the street IS TAXABLE.
- Conflicts With Federal Law. Current law also leads to a non-profit business being treated as educational by the federal government but a health club by state government.
- This Issue United Cultures: The martial arts are notoriously segmented by culture with each creating their own governing bodies and organizations. A statewide association was formed with board members from the Korean, Japanese, Filipino, Chinese, Brazilian and Thai martial arts communities representing. The Washington State Martial Arts Association was formed in only 2 months.