When a supplier places coin-op video games in a store and splits the money, who owes sales tax — the store owner, the supplier, or on the game play?

Plain-English summary

Joseph Granatelli asked about the sales-tax obligations of a video-game supplier and a store owner. The supplier installs coin-operated video games in the store, handles repair and maintenance, and once a month removes the money and gives the store owner 50% of the gross receipts.

The Department held: no tax on the game play or the owner's split, but the supplier owes use tax on the machines.

• Coin-operated amusement receipts aren't taxed. Receipts from operating coin-operated amusement devices, including video games, are not subject to sales tax (Bathrick Enterprises, Inc. v. Murphy). So the money customers put in the games isn't taxed.
• The owner's share is a real-property license, not a taxable rental. Although the arrangement looks like a "rental" of machines, the store owner is really granting the supplier a license to use real property (the floor space). Because the supplier retains exclusive access to the money — and thus exclusive possession of the machines — there is no transfer of "actual, exclusive possession," which is the prerequisite for a taxable "sale"/rental of tangible personal property.
• The supplier is the responsible party and owes use tax. Retaining that control makes the machine owner (the supplier) the responsible vendor (Rowe Cigarette Service v. Graves; Faculty-Student Assn., TSB-H-81(58)S). Since the supplier did not buy the machines for resale, its purchase and use of them is subject to sales and use tax.

What this means for you

Coin-op amusement play is outside the sales tax — but the equipment isn't. The quarters that go into the games aren't taxed, yet the operator who owns the machines pays sales/use tax when it buys them, because it's the end user, not a reseller.

A revenue split for machine space is usually a real-property license. If you own a store and let an operator place machines and pay you a cut, you're typically licensing space — a nontaxable real-property transaction — not renting tangible property. The tell is who controls the machines and the cash: here the operator kept exclusive access, so the store owner wasn't "renting" anything.

"Who controls it" decides who's the vendor. New York looks at exclusive possession and control to decide who's responsible for the tax. The party that keeps the keys and the cash box is treated as the operator/vendor — and bears the associated tax on the equipment.

Common questions

Q: Do we charge sales tax on the money customers put in our video games?
A: No. Receipts from coin-operated amusement devices, including video games, are not subject to sales tax.

Q: I own a store and get 50% of the machine revenue. Is my share taxable?
A: No. You're granting a license to use real-property space, not renting tangible property, so your share isn't taxed — provided the operator keeps exclusive possession and control of the machines.

Q: Does the operator owe any tax?
A: Yes. The operator owns the machines and didn't buy them for resale, so it owes sales/use tax on its purchase and use of the machines.

Citations and references

Statutes:

• Tax Law § 1105(a); § 1101(b)(5) — sales tax on receipts from sales, including rentals, of tangible personal property

Authorities cited:

• Bathrick Enterprises, Inc. v. Murphy — coin-operated amusement receipts not taxed; exclusive-possession test for a "sale"
• Rowe Cigarette Service v. Graves; Faculty-Student Assn. of SUC Plattsburgh, TSB-H-81(58)S — machine owner retaining control is the responsible vendor

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1983.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a83_16s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-83(16)S (Corrected Copy)
Sales Tax
March 28, 1983

This replaces TSB-A-83(16)S, which was previously distributed and should be destroyed.
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S821130A

On November 30, 1982 a Petition for Advisory Opinion was received from Joseph Granatelli,
45-50 216th Street, Bayside, New York 11361.
Petitioner inquires as to the sales tax obligations, if any, of a supplier of video games and a
store owner, under the following circumstances. The supplier installs video games in a store, and is
responsible for the repair and maintenance of the games. Once a month the supplier visits the store,
removes the money from the machines, and gives fifty per cent of such gross receipts to the store
owner.
Receipts from the operation of coin operated amusement devices, including video games, are
not subject to sales tax. Bathrick Enterprises, Inc. v. Murphy, 27 AD 2d 215. There is thus no sales
tax due on the receipts from the operation of the games by customers.
The rental of tangible personal property constitutes a sale the receipts from which are subject
to State and local sales taxes. Tax Law §§ 1105(a), 1101(b)(5). However, although Petitioner
characterizes the transaction in question as a "rental" of the machines, in actuality the store owner
is granting a license to the supplier to use real property. Thus, by retaining the right to exclusive
access to the money contained in the machines, the owner thereof has failed to effect a transfer of
"actual, exclusive possession," the prerequisite to the establishment of a "sale." Bathrick Enterprises
v. Murphy, supra. See also Rowe Cigarette Service v. Graves, 247 A.D. 852, in which retention of
such control as is present herein, with respect to cigarette vending machines, was held to constitute
the owner of the machines the responsible vendor for tax purposes. Such a finding of responsibility
is clearly grounded on a determination that the owner did not relinquish exclusive possession of the
cigarette machine to the proprietor of the store in which it was placed. In accord with Rowe is Matter
of Faculty-Student Association of State Universities College at Plattsburgh, Inc., State Tax
Commission, February 20, 1981, TSB-H-81(58)S. Another instructive case, albeit from a foreign
jurisdiction, is State v. Wards, 550 So 2d 732, in which the court stated the following: "We may
observe, as a matter of common knowledge, that many places of business rent space in their
establishments to third persons who may and do conduct their own and different businesses in such
space or department so rented. Such space or department becomes, and is, a separate place of
business, the business of such third party. If, therefore, a vending machine owner rents (method of
payment immaterial) space for a vending machine and such space becomes his place of business
(special or limited), in the conduct of his business he thereby makes himself, under the foregoing tax
statutes, liable for the tax to the state within the terms of the general sales tax and the vending
machine statute in question." Id., at 736.
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-83(16)S (Corrected Copy)
Sales Tax
March 28, 1983

Accordingly, no sales tax is due on the store owner's receipts, as no sales tax is imposed on
the sale or rental of, or license to use, real property. It may be noted that the supplier's purchase and
use of the machines, since they are not purchased for resale, are subject to applicable sales and use
taxes.

DATED: March 11, 1983

s/FRANK J. PUCCIA
Director
Technical Services Bureau