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As IHRSA representatives and Virginia health
club operators testified last week in
Manassas, competition from tax-exempt
organizations is a significant problem in the
fitness industry.

Please allow me to briefly address each of the
four issues raised by the Taskforce.

1. Alleged unfair business competition by
charitable organizations:

In 1987, the U.S. General Accounting Office
found that the fitness industry is the one most
universally impacted by unfair competition
from tax-exempt organizations. A decade
later, the nation's largest nonprofit -- the $3.5
billion YMCA -- is also its largest provider of
fitness facilities. The YMCA, hospitals, the
government, and others are opening and
aggressively marketing tax-exempt adult
fitness centers which are identical to
commercial, taxpaying clubs -- except that
tax-exempts enjoy up to a 33% cost
advantage, which allows them to underprice
taxpaying clubs and put them out of business.

[Not all tax-exempts underprice commercial
health clubs. A Fall 2000 "athletic center"
membership at the National Capital YMCA in
Washington, DC is $113.25/month plus a
$125 initiation fee! Who is this "charity" trying
to serve, anyway?]

Courts have begun to recognize that
tax-exempt organizations are directly
competing with taxpaying clubs. YMCA's in
some cities have lost all or part of their tax
exemption because of their non-charitable
fitness facilities. For example, the city of
Milwaukee, Wisconsin decided earlier this
year that a $6.5 million state-of-the-art YMCA
health club located in a shopping mall should
pay nearly $48,000 in annual property taxes.
And in Sewickley, Pennsylvania, courts have
upheld a tax assessor's decision to put that
city's YMCA on the tax rolls. The court wrote
that the YMCA fitness center "advances no
charitable purpose, concentrating rather on
providing high end fitness servises to paying,
affluent clientele."

IHRSA and its member health clubs welcome
business competition, so long as the playing
field is level and all competitors play by the
same rules.

2. Apparent advantages of untaxed
commercial activities to charitable
organizations:

The 33% cost advantage that a tax-exempt
health club has over a taxpaying club results
from the fact that a typical tax-exempt
organization:

* doesn't pay for money (no interest);
* doesn't pay for land or buildings (no
mortgage);
* is exempt from federal income taxes;
* is exempt from state income taxes;
* is exempt from local income taxes;
* is exempt from sales taxes;
* is exempt from property taxes; and
* receives large discounts on postal rates.

In addition, YMCA health clubs in Virginia are
exempt from the stringent state consumer
protection statutes with which all taxpaying
clubs must comply.

3. Is there a loss of public revenues?

Tax-exempt business competition leads to an
enormous loss of public revenues. This is
one reason why the state of Pennsylvania
enacted a law which prohibits charitable
organizations from using their tax-exempt
status to compete unfairly with small
business. This landmark legislation is already
being used as a model in other states.

According to a recent IHRSA survey, 87% of
U.S. taxpaying health clubs face business
competition from at least one tax-exempt
fitness provider. Several taxpaying clubs have
been driven out of business or forced to
relocate as a result of fitness services being
offered at a lower price by a tax-exempt
organization such as the YMCA. Every time a
tax-exempt competitor drives a taxpaying
health club out of business, the community's
tax base shrinks, increasing the burden on
remaining taxpayers and businesses.

4. To what extent should not-for-profit
organizations be allowed to carry on primarily
commercial activities in competition with
private businesses (which are fully taxed)
while receiving substantial tax and other
benefits not available to private business?

Organizations that provide services which are
readily available in the private sector (such as
health club memberships) should pay taxes
on revenue generated from those services.

Tax-exempt organizations such as the YMCA
claim that they are deserving of their exempt
status because they use revenue generated
from their health club memberships to fund
programs for children and senior citizens. In
reality, U.S. tax law looks at the source of the
revenue, not the ultimate destination of the
income, to determine tax status. For example,
Ben & Jerry's and McDonald's use revenue
generated from food & beverage sales to fund
charitable endeavors, but that doesn't make
them tax-exempt! Revenue earned from their
commercial activities are taxable, while
donations to charitable programs are
tax-deductible.

Virginia's General Assembly should follow the
lead of Pennsylvania's legislature and pass a
law prohibiting tax-exempt organizations from
competing unfairly with taxpaying businesses.
And Virginia's tax-exempt organizations
should keep IHRSA's position in mind: if you
act like a business, pay taxes like a business.

Kristen Adams
Public Policy Manager
International Health, Racquet
& Sportsclub Association (IHRSA)
www.ihrsa.org

Gold's Gym & Fitness Center
14290 D sullyfield Circle
Chantilly, VA 20151

I believe that rather than have private clubs bear the burden of proof that tax exempt organizations are indeed such, that the organizations should be considered "for profit" unless stricter guidelines are met. It certainly appears, to my biased brain, that many of the tax exempt fitness facilities do not seem to satisfy the requirements for tax exempt status any more than many of the private clubs.

If preferrential treatment is to be given in the fitness field, than why not have tax exempt tire stores, grocery stores or retail outlets. If there is a difference, please someone explain it to me since I don't see it.

Rich Feickert
President
Gold's Gym & Fitness Center

Why doesn't anyone expose the people that sit on the board of directors in these YMCA'S and the huge salary's they must be making. Certainly if the pay is anything like I have heard it is how could any one agree they are not for profit and allow them to maintain a tax exempt status.

Pleasant A. Lewis
President
Gold's Gym Alexandria Va, Orlando Fl

The United Way of Staunton and West Augusta County supports vital health and human services provided by the non-profit organizations in our communities. These services play a vital role in increasing the quality of life in our communities and are often provided at no fee or at affordable fees based on the ability to pay. This arrangement enables the recipients to participate in needed services in which they may not otherwise participate due to a lack of funds. Many of these services enable the recipients to become independent, self-sufficient tax-paying citizens, thereby increasing the overall health of the community. The United Way of Staunton and West Augusta County supports these services and the non-profit agencies that provide them as vital part of a health community.