Is a mobile point-of-sale device that sells paid premium content a taxable coin-operated device in Kansas?

Plain-English summary

A company operated a mobile point-of-sale device used for order placement, add-ons, checkout/payment, and customer satisfaction — and it also let customers pay (on their bill) for premium content: news, videos, sports, educational items, and interactive games. The company asked how Kansas sales and use tax applied.

The Department's answer: the device is a "coin-operated device." Because the premium content is a form of "amusement and diversion," the device fits K.A.R. 92-19-23a (which lists devices providing amusement — jukeboxes, pinball, video games, and "similar devices" — and is not limited to those listed), and K.S.A. 79-3603(f) taxes the gross receipts from operating any coin-operated device. It does not matter whether the customer pays before, during, or after gaining access. A single premium-content fee for unlimited access to the games, news, and social media on the device is taxable.

What this means for you

Operators of app-based or on-device paid content

If your device or kiosk charges customers for access to entertainment or informational content, Kansas may treat it as a coin-operated device and tax the gross receipts from its operation — regardless of the payment timing.

Collecting and remitting the tax

Use the method in K.A.R. 92-19-23a(c): either separately state and collect the sales tax on each customer's invoice, or, if you don't itemize it, state that the purchase is subject to all applicable state taxes. You may not deduct commissions paid to the businesses whose premises host the devices — the tax is on the device's gross receipts, so those commissions are not taxed again. If the vendor is not registered to collect Kansas tax, the Department recommends the vendor register (operating unregistered is unlawful under K.S.A. 79-3608(a)), and the company may self-accrue use tax until the vendor completes registration.

Common questions

Q: Why is a point-of-sale device treated as a "coin-operated device"?
A: Because it provides paid access to amusement and diversion (games, videos, sports, news), which falls under K.A.R. 92-19-23a; K.S.A. 79-3603(f) taxes the gross receipts from operating such devices.

Q: Does it matter when the customer pays?
A: No. The Department said there is no requirement to pay before, during, or after access for the device to be a coin-operated device.

Q: Can the operator deduct commissions paid to host businesses?
A: No. Tax is on the device's gross receipts, so commissions paid to the host locations are not deductible and are not separately taxed.

Q: Does this ruling apply to me?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it shows how the Department reasons.

Citations and references

• K.S.A. 79-3603(f) — imposes sales tax on the gross receipts from operating any coin-operated device dispensing or providing tangible personal property, amusement, or other services (except laundry).
• K.A.R. 92-19-23a — defines and gives examples of "coin-operated devices," including machines providing amusement and diversion (and is not limited to the listed examples); subsection (c) sets the tax-collection method.
• K.S.A. 79-3608(a) — makes it unlawful to sell tangible personal property at retail or furnish taxable services in Kansas without a registration certificate; supports the recommendation that the vendor register (with the company self-accruing use tax until then).

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2015-004

Original ruling text

Private Letter Ruling

Body:

November 3, 2015

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Dear XXXXXXXXX:

In your request for Written Opinion Letter for the sales and use tax for a Mobile Point of Sale Device (“Device”) your description of the use of the “Device” is order placement, order add-ons, checkout/payment, and customer satisfaction as well as to grant customers of the Company access to premium content, such as news, videos, sports, educational items, and interactive games, for a fee which is to be paid on their bill.

The Department deems such a device to be considered a coin-operated device for the purposes of Kansas sales and use tax. In accordance with this determination, Kan. Stat. Ann. §79-3603(f) requires the tax be paid upon the gross receipts from the operation of any coin-operated device dispensing or providing tangible personal property, amusement or other services except laundry services, whether automatic or manually operated.

Kan. Admin. Regs. 92-19-23a(b) to which you refer lists examples of what may deemed to be a “coin-operated device” and is not limited to those listed in the regulation. Furthermore, Kan. Admin. Regs. 92-19-23a(2) goes on to include “machines that dispense food, candy, drinks, or items of tangible personal property, including photocopies; that provide amusement and diversion; or that provide taxable services. Coin-operated devices that provide amusement and diversion shall include jukeboxes, pinball machines, pool tables, foosball tables, dart games, video games, and similar devices.” The “Device” provides access to news, videos, sports, educational items, and interactive games which would is a form of “amusement and diversion” to the customer.

There are no specified requirements on whether you pay before, during, or after to gain access to this content in order for it to be classified as a “coin-operated device.”

Therefore, the Department deems that the “Device” to be operated at XXXXXXXXXXXX is a “coin-operated device”.

The Company will be required to use the method provided by Kan. Stat. Regs. 92-19-23a(c) for the purposes of collecting the sales tax. The Company has the option to separately state the sales tax on each customer’s invoice and collect the specific tax amount. If the Company doesn’t itemize the sales tax, a statement must be made that the purchase is subject to all applicable state taxes.

The Company shall not deduct commissions or any other payment made to businesses upon whose premises the devices are located. Commission paid to the Vendor will not be taxed as taxes have been paid on the gross receipts of the devices.

With consideration to your question, “if the vendor is not registered to collect and remit tax, can the Company self-accrue use tax, it should first be noted that in K.S.A. 79-3608(a) it states: ". . . it shall be unlawful for any person to engage in the business of selling tangible personal property at retail or furnishing taxable services in this state without a registration certificate from the director of taxation." We therefore recommend that the vendor register with the state to do business in Kansas. With that in mind, the Company may self-accrue use tax until the time that the Vendor completes their registration.

In Kansas, a single premium content fee is charged for unlimited access to games stored on the “Device” and unlimited access to current news events and social media is taxable.

If you have any other specific concerns or questions, please do not hesitate to contact us.

This is a private letter ruling pursuant to Kansas Administrative Regulation 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MdB

Date Composed: 11/04/2015 Date Modified: 11/04/2015

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