Bill would reclassify studios as separate from larger fitness centers

The tax sort of snuck in there.

A retail sales tax on small martial arts studios went into effect on Jan. 1, 2016. But martial arts studio owners statewide — including in the Tri-Cities — didn’t know about the new tax on physical fitness centers until late 2015.

“We felt a bit caught off guard. We were given short notice,” said Erik Roach, owner of U.S. World Class Tae Kwon Do in Richland.

Wes Lewallen of Pacific Kicks in Kennewick said: “When we found out about it, a lot of people were confused. A lot of martial arts schools are fighting this issue.”

“There was no notification or engagement with the martial arts schools while the bill was in play (in 2015).  The bill title didn’t communicate to anyone we were on the chopping block or under scrutiny. Therefore, we had no chance to make a case to argue against the legislation,” wrote Karl Kanthak, owner of Kanthak Karate of Vancouver in an email.

In early 2016, martial arts, yoga and chi gong studios had to start paying Washington’s retail sale tax.

“The problem is we got sort of sucked into the definition of physical fitness (which must pay a 6.5 percent sales tax),” said Rep Cindy Ryu, D-Shoreline.

These businesses were swept up in the 2015 legislative rewording of definitions for several types of businesses covered by retail sales taxes.

“It was an unintended consequence,” said Andy Wilson, owner of Seattle’s MKG Martial Arts Academy.

Ryu now has a bill in the Washington House Finance Committee that would remove the state martial arts, yoga and chi gong studios from having to pay sales tax. She introduced the same bill in the 2016 legislative session, which passed the House 96-0, but did not make it to a full Senate floor vote.

Fitness centers with martial arts, yoga and chi gong previously have had to pay retail sales taxes. But the rewording in the 2015 legislation added that tax to independent businesses teaching those disciplines outside of fitness centers.

“That put us in the same bracket as Gold’s Gym,” said Megan Phillips of Legacy Jiu Jitsu in Richland.

Lewallen pointed out there is a difference between a gym full of equipment and a martial arts studio consisting of a room and a floor mat.

“We hit and punch the air. They put us in the same category as gyms with equipment,” he said.

In 2016, all this rippled through Washington’s martial arts world — increasing fees charged to students which led to a drop in martial arts studio membership across the state. Profit margins were slim enough that the studios could not afford not to raise rates, they said.

“When we first enacted it, a lot of people left,” Roach said.

Roach and Phillips did not have figures on how much business they lost. Lewallen said his student enrollment dropped from the mid-200s to about 200.

The MKG Academy in Seattle saw its membership drop from 202 students in February 2016 to 166 in May 2016.

“We had a record number of cancellations,” said owner Andy Wilson.

“Right off the bat, we lost 5 percent of our students who couldn’t afford the tax increase,” said Joni Sharrah, owner of the USA Karate Academy in Shoreline. Ultimately, the Shoreline studio lost about 25 of its 110 students in 2016.

“We’re really coming close to the edge,” she said.

Families tend to enroll several members at the same time, meaning a rate increase hits a household several times simultaneously.

“That can add up for a family,” Roach said.

Scott Browning, owner of the Vancouver Tae Kwon Do Academy, noted that marital arts studios tend to be small businesses that frequently keep to themselves. This tax issues has “caused a lot of people from diverse backgrounds to get together,” he said

The Tri-City studio owners have kept close track on the situation in Olympia, including talking with local legislators. However, Roach wondered about the political clout of Eastern Washington’s studios.

“Unfortunately with the Tri-Cities … martial arts studios are a lot fewer and far in between over here,” Roach said.

Browning is cautiously optimistic that removing the sales tax could lead to a rebound.

“It’ll take time. It’s always easier to lose business than gain it back,” he said.

Editor's note: Updated 4/17/19 to correct spelling of Wes Lewallen's name.