The Health (Club) Menace

Competition is healthy for the marketplace -- except when the government tips the scales

We all realize that there's only so much government can do to protect our health.

Sure, we've got plenty of health departments and all those lawsuits against the tobacco companies, but who can remember the last time anyone said, "Thank goodness our government is helping keep me and my family healthy -- I think I'll work for a tax increase"?

Well, good news. Government is active on the health front, right here in the St. Louis area and, now, throughout the state of Missouri.

I speak, of course, of the exciting new effort to prevent the spread of privately owned little businesses calling themselves health clubs, fitness centers, workout clubs or gyms. It's all-out war on these fitness-for-profit schemes.

Now, to be honest, I can't tell you why government has decided to take on your neighborhood health club, only that it's a reality that officials at all levels are pumped about keeping this small-business genre as small as possible. It's not something politicians like to talk about, perhaps because their actions have no rational basis, but there's a concerted effort afoot to stifle the spread of privately owned free weights and exercise equipment.

As the Riverfront Times reported earlier this month, the St. Louis area is among the national leaders in the proliferation of municipally owned recreation and fitness facilities -- especially aquatic parks -- and some offer direct competition to establishments in the private sector [Laura Higgins, "Taking the Plunge," RFT, June 6]. From Richmond Heights to St. Peters, from burb to shining burb, governments are using tax money to go into the health-and-fitness business.

On its face, it all appears reasonably benign: As a service to its residents, in the name of quality-of-life goals or simply for bedroom-community bragging rights, one of the 72,000-or-so cities in St. Louis County scrapes up a paltry $15 million to construct a world-class palace of exercise.

It seems unassailable from the community perspective, especially with regard to giving kids a place to play away from the streets, so generally life is all smiles at the rec center -- unless, that is, you own a fitness club down the street that's having its market-rate membership fees chopped by half or more by competition from the public sector.

For example, The Heights -- the state-of-the-art public fitness facility in Richmond Heights -- charges its residents a mere $200 for an individual annual membership. What's more, it offers similar cut rates to residents of neighboring communities and a rate of just $330 to anyone else.

These fees dramatically undercut prices in the private sector, which are generally in the $400-$500 annual range. The unfairness isn't lost on the competition.

"The most infuriating thing is that it's not a level playing field," says Ryan Manczuk, who, with partner Cory Galakatos, owns Magna Fitness in Brentwood. "They were financed by Richmond Heights tax dollars; they don't pay rent, they don't have a bottom line to meet, so they're able to sell memberships at a drastically reduced rate.

"And now we have to pay sales tax and they don't."

Oh yes, sales tax.

As if government hadn't done enough to exempt health-club ownership from the American dream, there's this news from Jefferson City: The state Supreme Court ruled in March that health clubs are no longer exempt from state sales tax.

Until now, state sales tax applied to recreational facilities but not to basic health-club memberships. The standard, upheld by the court as recently as 1998, was that exercise "primarily for recreation" was subject to state taxes and exercise "primarily for health" was not.

But in Wilson's Total Fitness Center Inc. v. Director of Revenue, the justices decided March 6 that the standard they had set just three years ago had come in a "fractured" decision that is now overturned. Wilson's, which has both recreational facilities (swimming pools, tennis courts and the like) and exercise equipment (heretofore considered health-related) had challenged the Missouri Department of Revenue's efforts to collect sales taxes on all its memberships.

Still unbeknownst to many private clubs, membership fees to virtually all health clubs will be subject to state sales tax. This, of course, doesn't apply to public facilities, further widening the gulf between them and their for-profit competitors.

"The 'fine line between exercise that is primarily focused on health benefits and exercise that is primarily focused on recreation' simply cannot be distinguished in a meaningful and consistent manner," wrote Chief Justice William Ray Price Jr.

With stunning irony, Price expressed concern about "the anomalous result that, in the same community, one health and fitness center's membership fees are subject to the state sales tax while another health and fitness center's membership fees are not."

What about the anomaly of having one health-and-fitness center's membership fees subject to private capital costs, interest, rent, profitability and so on and another's -- the facility owned by a city -- having none of those costs factored in?

Can you think of another type of small business so directly targeted for competition by the government?

What would grocers and restaurateurs think of a City of Richmond Heights Health-Food Store? How about a City of Richmond Heights Auto Center to provide cut-rate maintenance for environmental reasons?

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