Are admission fees to an escape room or 'mystery room' interactive game subject to New York sales tax?

Plain-English summary

A New York City company runs "mystery rooms" / "escape rooms": groups of up to 10 people are locked in a themed room and work together to solve puzzles and riddles to complete a story-driven mission (sometimes escaping the room). There's no charge just to enter the premises, but each customer pays a fee to enter a room and play. The rooms are built by a professional theater set designer, and a staff member supervises each game, sometimes entering in character to help. The company markets the games as fun group activities and as corporate team-building. It asked whether these admission charges are taxable. The Department concluded yes — they're subject to State and local sales tax.

New York taxes "any admission charge … to or for the use of any place of amusement in the state" (Tax Law § 1105(f)(1)). An "admission charge" includes amounts paid for entertainment or for the use of the facilities for it (§ 1101(d)(2)), and a "place of amusement" is any place providing facilities for entertainment, amusement, or sports (§ 1101(d)(10)). Escape rooms are mentally stimulating entertainment that fits squarely within the ordinary meaning of "amusement," so the fee to enter and use a room is a taxable admission.

The Department rejected the company's exemption arguments. The handful of admission exemptions in § 1105(f)(1) — live dramatic or musical arts performances, and sporting activities in which the patron participates — don't apply. A staff member playing a character doesn't convert the amusement into an exempt dramatic-arts performance (20 NYCRR 527.10(d)(2), Example 5; the Doherty/Eerie Productions haunted-attraction decision treated on-site actors as confirming a place of amusement, not exempting it). And the participating-patron exclusion is limited to sporting activities involving physical activity; the company conceded its missions involve no physical activity, so they aren't sporting activities. It also isn't a tax-favored "networking activity." The charge therefore stays taxable.

What this means for you

Escape room, mystery room, and similar attraction operators

Your admission/play fees are taxable admissions to a place of amusement under § 1105(f)(1). Collect State and local sales tax on them, sourced to where the venue is. Theming, story, set design, and in-character staff make for great experiences but don't create a tax exemption — they reinforce that you're running a place of amusement.

Don't over-read the dramatic-arts exclusion

The live dramatic/musical arts exclusion is narrow. Having actors or a "live" element doesn't qualify an interactive game, haunted house, or themed attraction as an exempt performance; the patron is being amused by using your facilities, not watching a dramatic or musical arts production. If you think your offering is genuinely a staged theatrical performance, get specific guidance — the line is fact-sensitive and the Department reads the exclusion strictly.

The participating-patron exclusion is for sports

Patrons being "active participants" only matters for sporting activities (e.g., bowling, golf, a batting cage) where the patron participates. Mental puzzle games with no physical activity don't qualify. Mixed venues (e.g., axe-throwing, climbing, trampoline parks) raise closer questions about whether the activity is a sporting one — analyze each offering.

Accountants and tax professionals

The chain is § 1105(f)(1) (taxable admissions), § 1101(d)(2) (admission charge includes charges for entertainment/use of facilities), and § 1101(d)(10) (place of amusement), with the 1605 Book Center, 677 New Loudon, Wien v. Murphy, and Fort William Henry line confirming the broad reading of "amusement" (educational or historic value doesn't defeat amusement status). The exemptions are construed narrowly: dramatic/musical arts and participatory sporting activities only.

Common questions

Q: Are escape room admissions taxable in New York?
A: Yes. They're admission charges to a place of amusement under Tax Law § 1105(f)(1), subject to State and local sales tax.

Q: We have actors in character — isn't that an exempt dramatic performance?
A: No. In-character staff don't convert the experience into an exempt live dramatic or musical arts performance; the Department treats on-site actors as confirming a place of amusement (20 NYCRR 527.10(d)(2), Ex. 5; Doherty/Eerie Productions).

Q: Our patrons actively participate — doesn't the participating-patron exclusion apply?
A: Only to sporting activities. Escape-room puzzles involve no physical activity, so they aren't sporting activities and the exclusion doesn't apply.

Q: Does it matter that we market it as educational team-building?
A: No. Educational, historic, or team-building value doesn't strip a venue of its status as a place of amusement.

Q: Can I rely on this opinion?
A: No. An Advisory Opinion binds the Department only as to the petitioner and the facts presented. It illustrates the Department's reasoning but cannot be relied on by another taxpayer.

Citations and references

Statutes and regulations:
- Tax Law § 1105(f)(1) (sales tax on admission charges to a place of amusement; exclusions for dramatic/musical arts and participatory sporting activities)
- Tax Law § 1101(d)(2) (admission charge includes charges for entertainment or use of facilities)
- Tax Law § 1101(d)(10) (place of amusement)
- 20 NYCRR 527.10(d)(2) (dramatic/musical arts admission examples)

Authority referenced in the opinion: Matter of 1605 Book Center, Inc. v. Tax Appeals Tribunal, 188 AD2d 694 (1992), aff'd 83 NY2d 240 (1994); Matter of 677 New Loudon Corp. v. Tax Appeals Tribunal, 19 NY3d 1058 (2012); Wien v. Murphy, 28 AD2d 222 (1967); Matter of Fort William Henry Corp. v. State Tax Comm'n, 52 AD2d 664 (1976); Matter of Doherty d/b/a Eerie Productions, DTA No. 826909 (May 29, 2019); TSB-A-02(58)S (networking activities).

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao.htm
• Opinion: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales/24-36s.htm
• Printer-friendly PDF: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a24-36s.pdf

Original ruling text

Sales Tax
August 20, 2024
Office of Counsel

The Department of Taxation and Finance received a Petition for Advisory Opinion from [ redacted ] (“Petitioner”). Petitioner asks whether its charges for admission to its “mystery” or “escape” rooms to play an interactive game are subject to State and local sales taxes.

We conclude that Petitioner’s charges for admission to and use of its mystery rooms are subject to sales tax.

Facts

Petitioner is a New York limited liability company located in New York City. Petitioner provides “mystery rooms” or “escape rooms” (“mystery rooms”) where groups of up to 10 people are locked in a room and collectively try to solve mental exercises, puzzles and riddles with the aim of unraveling a mystery. Participants engage one of several “story-driven missions,” which sometimes include escaping the room. Petitioner does not charge admission to enter the premises, but charges each customer a fee to enter a mystery room and participate in a mission. The mystery rooms are designed by a professional theater set designer. Each mystery room is supervised by an employee who plays a part in the mission and who sometimes enters the room in character to assist the participants. Petitioner advertises the missions as fun and challenging group activities for families, friends, students, tourists and others. It also markets the missions as team-building activities for businesses and organizations, because they are designed to foster teamwork and group communications.

Analysis

Tax Law § 1105(f)(1) imposes sales tax on “any admission charge . . . to or for the use of any place of amusement in the state.” Certain admissions charges are exempt from sales tax, including live dramatic or musical arts performances and sporting activities in which the patron is a participant. Id. An “admission charge” includes “[t]he amount paid for admission, including any service charge and any charge for entertainment or amusement or for the use of facilities therefor.” Tax Law § 1101(d)(2). A place of amusement is defined as “[a]ny place where any facilities for entertainment, amusement, or sports are provided.” Tax Law § 1101(d)(10).

Petitioner’s mystery rooms are places of amusement used for the provision of entertainment. See Matter of 1605 Book Center, Inc., v. Tax Appeals Tribunal, 188 AD2d 694, 696 (3d Dep’t 1992), aff’d, 83 NY2d 240, (1994). Petitioner states that its mystery rooms are intended to be a form of amusement. The missions are designed to provide mentally stimulating entertainment. These activities fall within the common understanding of the term “amusement.” See Wien v. Murphy, 28 AD2d 222 (3d Dep’t 1967) (holding that the common understanding of “amusement” included a “diversion” or “recreation” or a “pleasurable occupation of the senses, or that which furnishes it.”); see also Mater of Fort William Henry Corp. v. State Tax Comm’n,, 52 AD2d 664 (3d Dep’t 1976) (holding that the status of a facility as a place of amusement was not weakened by historic or educational significance).

Petitioner contends that its charges are exempt from sales tax on several grounds, but none of the grounds offered apply to the admissions to Petitioner’s mystery rooms. For example, Petitioner suggests that it is providing a live dramatic or musical arts presentation based on the in-character participation of its employee. However, the employee’s interactions do not transform petitioner’s amusement into an exempt dramatic or musical arts performance. See 20 NYCRR 527.10(d)(2) Example 5; see also Matter of Doherty d/b/a Eerie Productions, DTA No. 826909 (Tax Appeals Tribunal, May 29, 2019) (presence of actors supported a determination that a haunted attraction was a place of amusement). Petitioner also argues that its charges should be exempt because its patrons are active participants. However, the exclusion for participating patrons applies only to admissions to sporting activities. Petitioner concedes that its missions do not involve physical activity. Therefore, they cannot be considered sporting activities. Nor is it a “networking activity,” the primary function of which is to facilitate dating or making business contacts. See TSB-A-02(58)S.

Petitioner charges customers to enter the mystery rooms and to use the facilities in those rooms to participate in an entertainment activity. Thus, the charge is within the meaning of Tax Law § 1101(d)(2) and it is subject to sales tax under Tax Law § 1105(f)(1). See Matter of 677 New Loudon Corp. v. Tax Appeals Tribunal, 19 NY3d 1058 (2012); Matter of 1605 Book Center, Inc., supra.

DATED: August 20, 2024

Mary Ellen Ladouceur
Principal Attorney

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.