Is a restaurant's monthly fee to license a vendor's tabletop ordering tablets taxable, and are the charges patrons pay for premium content on those tablets taxable?

Plain-English summary

A casual-dining chain contracted with a vendor ("Company X") to put tabletop point-of-sale tablets at each table in its New York restaurants. Diners use the tablets to view the menu, order food and drinks, and pay — and can also pay separate fees to access premium content (news, sports, social media, music, games). The restaurant pays Company X a monthly license fee for the devices and collects the premium-content charges from patrons. It asked about the sales tax on both money flows.

The Office of Counsel held both are taxable:

• The restaurant's payments to Company X are consideration for a license to possess and use the tablets — and New York's definition of "sale" includes a rental or license to use tangible personal property. So the monthly charge is a taxable rental/license of tangible personal property. The tax rate is set by where the devices are delivered in New York (point of delivery controls). An alternative arrangement in which the restaurant instead pays over premium-content fees (rather than a flat monthly fee) is also taxable — it's still consideration for the right to use the devices.

• The patron charges for premium content are taxable as an "other charge" on restaurant food and drink. Tax Law § 1105(d)(i) taxes receipts from food and drink sold by restaurants, including any cover, minimum, entertainment, or "other charge" to patrons. Because the premium-content fee appears as a line item on the diner's food-and-beverage bill, it's an "other charge" and is taxable — whether or not separately stated.

What this means for you

Restaurants using tabletop or handheld ordering tablets

The fee you pay a technology vendor to use its devices is a taxable rental of tangible personal property, not a tax-free service — even if it's billed monthly and described as a license. And anything you charge diners for entertainment/content at the table rides along with the meal as a taxable "other charge."

Technology vendors licensing hardware to restaurants

Structuring payment as a revenue share instead of a flat fee doesn't avoid the tax — it's still consideration for the use of your hardware. Delivery location in New York drives the rate.

Accountants and tax professionals

Two hooks: § 1101(b)(5) license-to-use makes the device fee a taxable rental (rate by § 525.2(a)(3) delivery point), and § 1105(d)(i) sweeps the patron content charge into the taxable restaurant bill as an "other charge."

Common questions

Q: We pay a monthly "license" fee, not rent — isn't that a non-taxable service?
A: No. A license to possess and use tangible personal property is a "sale" (rental) under § 1101(b)(5), so the fee is taxable.

Q: What if we pay the vendor out of content revenue instead of a flat fee?
A: Still taxable — it remains consideration for your right to use the devices.

Q: Why is the diner's premium-content charge taxable?
A: It's billed as a line item on the food-and-beverage bill, making it an "other charge" on restaurant food and drink under § 1105(d)(i).

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

• Tax Law § 1105(a) (sales tax on retail sales of tangible personal property)
• Tax Law § 1110 (compensating use tax)
• Tax Law § 1101(b)(5) ('sale' includes a rental or license to use tangible personal property)
• Tax Law § 1105(d)(i) (food and drink in restaurants, including any cover, minimum, entertainment, or 'other charge')
• 20 NYCRR 526.7 (selling/purchase include rentals); 20 NYCRR 525.2(a)(3) (point of delivery controls tax incidence and rate)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales-ao-2020.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a20-40s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(40)S
Sales Tax
October 20, 2020

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
The Department of Taxation and Finance received a Petition for an Advisory Opinion
from [ REDACTED ] (“Petitioner”). Petitioner asks about the sales tax consequences of its
contract with Company X under which Petitioner receives a license to use Company X’s mobile
point of sale devices at Petitioner’s New York restaurant locations, along with the right to give
its restaurant customers access to online content Company X makes available through those
Devices. We conclude that the payments Petitioner makes under its contract with Company X
are taxable as receipts from the sale of tangible personal property. We further conclude that the
receipts Petitioner receives from charging its patrons for access to such online content are taxable
as an “other charge” under Tax Law § 1105(d).
Facts
Petitioner is a casual dining company with restaurant locations nationwide including in
New York. It has entered into a contract with Company X, under which Company X promises to
provide Petitioner with mobile point of sale devices (“Devices”) in its New York locations. The
Devices are Android tablets with a touch screen interface that will be placed at each table.
Petitioner estimates that each location will contain approximately 50 Devices. The Devices
provide pictures and detailed descriptions of the menu items. They allow customers to place
drink, appetizer, and entrée orders, and to pay their check directly by credit card, debit card, or
gift card. Alternatively, the check can be paid through their server/wait staff if preferred.
Petitioner states that the primary purpose of the Device is to facilitate ordering, checkout/payment, and customer satisfaction surveys. The Devices also provide restaurants the option
to allow Petitioner’s patrons to access premium content, which may be located on the Devices or
may be online content accessible through the Devices. This premium content may include news,
sports, social media accounts, music, and interactive games. The customer would be charged
separate fees for premium content. The premium content fee would be included as a line item on
the customer’s food and beverage bill and would be collected by Petitioner.
Company X charges Petitioner a monthly fee for a license to possess and use the Devices,
and access the premium content on the Devices. Per the contract between Petitioner and
Company X, Petitioner is responsible for collecting the revenue generated by accessing the
premium content. The agreement also requires Petitioner to collect and remit any State and local
sales and use tax imposed on the transactions. Company X may also charge monthly
commissions to Petitioner as a percentage of the premium content fee income.

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TSB-A-20(40)S
Sales Tax
October 20, 2020

Petitioner states that it and Company X may agree to an alternative fee arrangement.
Under this alternative, Company X would not charge Petitioner a monthly service fee for use of
the Device. Instead, Company X would receive from Petitioner all of the premium content fees
up to a set amount per month, and the fees in excess of such amount would be shared with
Petitioner.
Analysis
Sales and use tax is imposed on retail sales of tangible personal property. See Tax Law
§§ 1105(a) and 1110. Tax Law § 1101(b)(5) defines “sale” as “any transfer of title or possession
or both, exchange or barter, rental, lease or license to use or consume … conditional or
otherwise, in any manner or by any means whatsoever for a consideration ….” Therefore, the
term “sale” for purposes of the Tax Law includes a rental or license to use. The terms “selling”
and “purchase” also include rentals. See 20 NYCRR 526.7. Petitioner’s payments under the
contract constitute consideration for the license to actually possess and use the Devices.
Consequently, the monthly charges to Petitioner for the use of the Devices are considered to be
receipts from the license or rental of tangible personal property and are subject to sales tax. See
Tax Law §§ 1101(b)(5) and 1105(a). The point at which possession of tangible personal
property is transferred by the vendor to the purchaser, or the purchaser's designee, controls both
the tax incidence and the tax rate. See 20 NYCRR 525.2(a)(3). Thus, when the Devices are
delivered within New York State, the point of delivery (i.e., the shipping address) dictates the tax
rate used to compute the appropriate state and local sales tax on the monthly charge.
Petitioner also asks about an alternative fee arrangement, whereby Petitioner would not
pay a monthly charge for use of the Devices, but instead would pay over all or a portion of the
premium content fees to Company X. Payments made by Petitioner to Company X as measured
by the amount of the content fee collected for the premium services also would be taxable. Even
though measured by the premium content fee, such amounts still would constitute consideration
by Petitioner in return for the right to use the Devices and would be taxable as a sale of tangible
personal property. See Tax Law §§ 1101(b)(5) and 1105(a).
Turning to the taxability of the charges to customers to access the premium content
services, Tax Law § 1105(d)(i) imposes sales tax on the receipts from every sale of food and
drink sold in or by restaurants, taverns or other establishments in New York State. Included in
the receipts subject to sales tax under Tax Law § 1105(d)(i) is “any cover, minimum,
entertainment or other charge made to patrons.” As part of the food service offered at
Petitioner’s restaurant, the patrons can pay to access the Devices’ premium services. The
premium content fee would be included as a line item on the customer’s food and beverage bill
and would be collected by Petitioner. The charge for the access to premium content constitutes
an “other charge” within the meaning of Tax Law § 1105(d)(i) and thus is taxable.

-3-

TSB-A-20(40)S
Sales Tax
October 20, 2020

Consequently, whether or not they are separately stated, Petitioner’s full charge for its food
service and any access charge to the Devices’ premium content are subject to sales tax.
DATED: October 20, 2020

/S/
DEBORAH R. LIEBMAN
Deputy Counsel
Note: An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the person or
entity to whom it is issued and only if the person or entity fully and accurately describes
all relevant facts. An Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific time period at
issue in the Opinion. The information provided in this document does not cover every
situation and is not intended to replace the law or change its meaning.