By Caitlin McDevitt
The Big Money
Sunday, January 3, 2010; G01
Just before leaving Washington, lawmakers cut a controversial cosmetic-surgery tax from the Senate version of the health-care bill and, in its place, tucked in a 10 percent tax on indoor tanning services. The new tax, proposed by the American Academy of Dermatology Association, is meant to discourage the practice of indoor tanning, which studies have shown can lead to skin cancer. Plenty of people are fired up about the issue. Some say the government shouldn't tax things that it deems bad for you -- whether fake suntans, cigarettes or soft drinks. Others argue that the tax unfairly targets young women and small businesses. But the real trouble with the tan tax is in the math.
While the "bo-tax" was supposed to bring in an estimated $5.8 billion over 10 years, the tan tax -- according to the Joint Committee on Taxation -- would bring in $2.7 billion. Industry groups representing the tanning salons say that number is way off. International Smart Tan Network, a Jackson, Miss.-based industry group, said in a statement that the proposal "overestimates tanning revenues by 40 to 50 percent."
John Overstreet, executive director of the Indoor Tanning Association, sounded equally confused about the $2.7 billion figure. "I don't know where that number came from," he says. "I just don't think it could be that high." Of course, the tanning lobbies are aiming to paint the tax proponents as dumb and out of the loop while there's still a chance to scrap the tax when the Senate bill is reconciled with the House version. But while their claims that cooking your skin is actually healthy sound contrived, this argument -- that the proposal can't generate as much revenue as is being touted -- may be worth considering.
The Joint Committee on Taxation estimates that, under the new proposal, taxable revenue from tanning salons will remain steady or rise slightly year over year for the next decade. Yet the $5 billion business of bronzing -- especially by means of the conventional tanning bed -- is currently struggling. Over the past year, Hollywood Tans has closed one-fifth of its franchised salons because of sluggish sales. Revenue for the industry as a whole will fall an estimated 5.1 percent in 2009 and sink even further in 2010, according to research firm IBISWorld. Salons have been hit hard by the recession, as an artificial suntan is an easily disposed luxury; a single tanning-bed session costs $6 on average, and devoted tanners tend to go twice or more each week.
As the economy improves, will demand for indoor tanning warm up again? That's unclear; the tanning industry had its heyday 30 years ago. Since the mid-1980s, the industry has been battered by a rising tide of critical medical studies and anti-tanning legislation. At least 31 states regulate indoor tanning for minors, according to the National Conference of State Legislatures. Just last month, the country's first local ban on indoor tanning for those under the age of 18 was passed in Howard County. And in July, the World Health Organization broadcasted one of its most damning warnings yet about tanning beds, declaring them "carcinogenic," and placed them in the same category as cigarettes and arsenic.
Over the years, such health warnings have gone heard but unheeded by many. But that may have been because tan seekers once saw no worthy alternative. Increasingly, they have another option on the table -- or in the booth, that is. Spray-on tan -- when the face and body are misted with nontoxic colored chemicals -- is the bright spot for the future of the tanning industry. Even though the service can cost more than three times as much as baking under bulbs, it's considered much safer. "Growing awareness about the high cancer risk associated with UV tanning beds will invariably diminish market share," George Van Horn, an IBISWorld senior analyst, said in a statement. He estimates that sunless tanning accounted for roughly 11 percent of tanning-salon revenue two years ago and may reach as high as 17 percent for 2009. And as technology improves for the spray tan (read: customers exit looking less orange), most industry insiders predict that it will continue to lure customers away from traditional tanning beds.
So what does the rise of the sunless-tanning trend mean for the tan tax? Very little when it comes to money. The proposed tax won't cover non-ultraviolet, artificial tanning because it doesn't have the proven negative health effects of the beds. That means that even if tanning revenue does grow, as expected, the tax still won't bring in nearly as much money as has been projected. The Joint Committee on Taxation has not responded to a query asking whether it had considered the likely possibility that the industry's future revenue streams would increasingly come from the sunless category.
Paradoxically, as with all sin taxes, those who propose the tan tax should be happy if it generates less revenue, right? That would suggest the tax was a successful deterrent and had contributed to the decline of indoor tanning. Still, jumping to that conclusion may be giving the tax proposal credit for something that it's not actually responsible for. The conventional fake suntan seems to be fading out all on its own.
Caitlin McDevitt is an editorial assistant at The Big Money.
http://www.washingtonpost.com/wp-dyn/content/article/2009/12/31/AR2009123103489.html
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