Were play-by-mail turn fees nontaxable moderation services when players could submit moves without buying or using the provider's forms?

Plain-English summary

A company moderated historical, science-fiction, and fantasy games played through the mail. Players bought taxable rulebooks, submitted moves, and paid turn fees for the moderator to evaluate the moves and determine their effects in the game.

California treated the turn charges as nontaxable services only when the provider's move forms were free, optional, obtained independently of the rulebook and turn charges, and players could instead submit moves on plain paper, customer-generated forms, or by telephone. The ruling also assumed that buying the rulebook did not entitle the player to a fixed number of turns.

The conclusion differed from a 1985 opinion in which forms or computer cards were integral to play. If a game still could not be played without purchasing those items, the moderation remained taxable as part of their sale.

If a rulebook purchase included blank forms, California would treat the transaction as a sale of both items, although the seller could buy forms for resale with a resale certificate. When forms were merely consumed incidentally in the service, the provider owed tax to its printer and could not issue a resale certificate.

What this means for you

Game operators

Required or bundled player materials can make moderation part of a taxable property sale; genuinely optional input forms supported service treatment.

Accountants and tax professionals

Review rulebook sales, bundled forms, required media, included turns, optional turn fees, resale certificates, printer location, and provider use of forms.

Common questions

Q: Were the rulebooks taxable?

A: Yes.

Q: Were optional turn-moderation fees taxable?

A: No, under the stated conditions.

Q: What if players had to buy forms or cards to participate?

A: The moderation would be taxable as part of the property sale.

Q: Who owed tax on free optional forms?

A: The game provider as consumer.

Citations and references

• California Revenue and Taxation Code §§ 6006(a) and (f) and 6012(b)(1)
• California Sales and Use Tax Regulations 1500(c)(3), 1501, 1668, 1684, and 1685

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 515.0012.820
• Original supporting opinion: 515.0012.820 PDF

Original ruling text

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April 28, 1988

Play-by-mail games
Dear M r . In your February 16, 1988 letter to the Board's Sacramento District office, which was referred to the legal staff for reply, you ask for a ruling on whether your play-by-mail games are subject to sales tax when sold to California residents. You write: " is a moderator of historical, science fiction and fantasy games which are played through the mail in much the same way that chess is sometimes played through th~ rnail. "~hen a customer signs up for our game, we send t~em a rulebook which explains how the game is pl~yed. To play the game the player indicates how he will move his units in the game by filli~g out a form we provide or just sending his ~ove on note paper. We provide the service

• :: cos,--,J :1ating the movements he has made to
  ~~~: ~ine the success of his actions. This
  ~~c~ 2nd forth process through the ~ail may
  :~~t s~veral yeais until the game is eventually
  • ·} C r; ·) T l OS t .
  :•:. ~

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my.. opinicn th,3.t

~ulAhooks for sale which are taxable
I n a (1 .~ i t i c r: -.: o r o v i ae
r::;

-_- -:~,::~ in ':be moder~tion (servi:19 as t:-12
~~~~~2cr anf referee) of the games which is a

April

.l. 98 8

?~venue and Taxation ca~e Sections S00E(~l and (f},

,S0}.2(b){l).

l'dl sersonal prcpcrt v

• • • • • • • • • • • ~u:·~~ Gi: c, wit~ t h~ ~.c:::e 1; at1or. service is r.:erel /
                      1nc1Gental to the serv1ce.

"He ?rovide a forM the player may USP to make it ~asier to expl~in ~is actions in our game. But, this form is not required for play of the game. We do ~ot sell the forms. We will an~
~o accept turns submitted on plain paper, customer computer generated forms and OP. occa!oi::>n over the t.elephone. The single sheet of paper form is certainly not what the player is paying ~3.50 or more for when he submits a turn. He is paying fer our service in determining the quality of his ideas and their effect within our game." (Emphasis in original).

This letter sets out different facts than in your February 6, 1985 letter to the Board, to which I responded by letter dated May 20, 1985. In summary, your February 6, 1985 lett~r indicated that the forms anc ccmputer cards which you provided to the players were internal parts of the games, and the players submitted all their turns on either the forms or the cards, depending on the game. My
~ay 20, 1985 letter to you therefore concluded that the services you provided as moderator of the play-by-mail games were taxable as a part of the ~ale of the forms and cards, since the players could not p~rticipate withcut obtaining these items. In your February 16, 1988 letter, you now relate that while you provide a f0rm for the player to use, the form is not required for the play 6f the game, and you do not sell the forms. You accept turns submitted on plain paper 0r in other ways. I cannot tell from your letter whether these new facts relate to differ~~t game~, or whether all of the games can now be played wit;·, C•?t i cn-3 l forms. If scse of the ga~es still cannot be played withoc~ :he purc~.:,~e cf. fo!':'rns or c~r~2, c~n r

o~•inion re~ain::-- the sarrr-

-~

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~ay 20, 1925 letter to yo~.
I am also nc-t certai2 tror:-: t:--!c facts set out ~~ ~z7our .le~~- :~- -~,::-~,", the pla.}1 ~r~ c=:,tnin the ~:la.:1 ~{ :crms. If ~:.1c~1 ~-layer w!1e-r:

purch2sing a rulebook ~lso receives a set of blank for~~ .

;~ woul~

view t:1is :!:"an~action a:o a salE of both the rulebook an - ·'· , t

• -~ ,-,

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p u r s u :'i :: -:: t 0 -2 e g u 1 a t i o n 1 6 6 .3 i ~ o r c: '= r f o r r "· ·: •. , 1. ,,, .

Apr i 1 2 8,

1S88

t c ;:-- ;: .- ,- ..,_j ~' s '" t h e f o r ms ,, r. - t a. x

If tt~ 0 l 3 y 2rs obtain the f~r~s free of charge independently of your s alc2 of the rulebook s 3nd independently of your charges for accep'.:: L:·? t u :ns .submitt0 d '..l~' t he players, t hc r, our opinion is that with re sp ect to games played in this manner, you correctly contend you a~e providing a nont~xable service of ~oderating the play-by-~ a i1 games, and th P forms you use are incidental tc that service, un~er Regulation 1 501. This assu~es that all your charge~ :~r the turns are optional with the player, and there is not a c ~r t ain number of turns to which the player is entitled with the purchase of the rulebook. Accordingly, no sales or usr: tax
~ould apply to the charges you make for the players to submit their turns. However, sales or use tax will apply to your purchase of the forms fron your printer. This is because you would be the consumer, not the retailer, of the forms which you use incidentally to your services. Accordingly, you may not issue a resale certificate to your printer for the forms you purchase. (Regulations 1501 and 1500(c)(3)). Furthermore, if you purchase the forms from an out-of-state printer, use tax, rather than sales tax, will apply to your purchase of the forms. You should report and pay this use tax to the Board unless the printer is registered with the Board to collect the tax. (Regulations 1684 and 1685). I enclosG copies of Regulations 1500, 1501, 1668, 1684, and 1685 for your information. Please feel fre€ to contact me if you have any further questions or comments about this letter. Sincerely,

John Abbott
Tax counsel
Snc

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