Does a preschool play-group and party business owe sales tax on its charges, and does it matter whether the event includes food, drink, or entertainment?

Subject

Whether Petitioner's client is required to collect sales tax on the services it will provide consisting of play groups and parties for preschool children.

What this means for you

A business planned to offer two things for preschool-age children: play groups, which are social and educational classes, and children's parties (mainly birthday parties) centered on entertainment such as a clown, magician, or animated character, or an instructional activity like martial arts, aerobics, or crafts. The parties would also include a short serving of pizza, a beverage, and cake -- all purchased ready-made from outside food establishments, with no on-site preparation -- plus party favors and candy for each child.

New York taxes receipts from food, drink, and entertainment/cover charges sold by restaurants, taverns, or caterers. Because these parties bundle children's entertainment together with food and drink, they fall squarely within that tax -- it doesn't matter that the food and beverages were bought elsewhere and simply served at the party rather than prepared on the premises; the business can, however, take a credit on its own sales tax return for any tax it already paid when purchasing that food and drink. The play groups are different: classes for preschoolers built around social and educational activities aren't among the services New York's sales tax law enumerates, so they escape tax entirely -- unless a particular play-group session is itself sold together with food and drink, in which case that session would be taxed the same way the parties are.

Q&A

Q: We run preschool play groups that are purely social/educational classes, with no food or drink -- do we owe sales tax on those charges?
A: No, per this opinion -- play groups aren't among New York's enumerated taxable services.

Q: We host children's birthday parties that include entertainment plus pizza, drinks, and cake -- is the whole party charge taxable?
A: Yes, per this opinion, under Tax Law § 1105(d)(i) -- bundling entertainment with food and drink makes the whole charge taxable, the same as a restaurant or caterer's charge, even if the food and drink were purchased ready-made from an outside vendor rather than prepared on site.

Q: We pay sales tax when we buy the food and drink from an outside restaurant to serve at the party -- do we get taxed twice?
A: No. Per this opinion, the business can take a credit on its own sales tax return for the tax it already paid on that food and drink purchase.

Q: What if we sell a play-group class together with food and drink?
A: Per this opinion, a play-group charge is only tax-exempt when sold WITHOUT food and drink; combining a play group with food and drink would subject that charge to sales tax as well.

Q: Can another children's party or play-group business rely on this opinion?
A: No. This advisory opinion binds the Department only as to the petitioner and the facts described here; another taxpayer cannot rely on it.

Citations

• Tax Law § 1105(d)(i) -- imposes tax on receipts from food, drink, and beverages of any kind sold by restaurants, taverns, or other establishments or by caterers, including any entertainment, cover, or minimum charge to patrons.
• Tax Law § 1105(c) -- the general list of enumerated taxable services, which does not include preschool play-group classes standing alone.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a93_64s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (64) S
Sales Tax
December 27, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S930927B

On September 27, 1993, a Petition for Advisory Opinion was received from Dianne C.
Hoffman, C.P.A., Craig Morris & Company, 356 South Oyster Bay Road, Syosset, New York 11791.
The issue raised by Petitioner, Dianne C. Hoffman, C.P.A., is whether Petitioner's client is
required to collect sales tax on the services it will provide consisting of play groups and parties for
preschool children.
Petitioner's client will operate a business which consists of providing preschool children with
play groups and parties.
The play groups are classes for preschool children and all activities are of a social and
educational nature.
The other business activity will be children's parties, primarily birthday parties. At the party
the primary focus will be children's entertainment such as a clown, magician or other animated
characters, or an instructional activity such as martial arts or aerobics or a craft and play activity. As
part of this service during the party for a short period there will be pizza, beverage and cake served.
All food and beverages will be purchased from outside establishments. No preparation will be done
on the premises. In addition, party favors and candy will be distributed to each attending child.
Section 1105(d)(i) of the Tax Law imposes a tax upon:
"The receipts from every sale of beer, wine or other alcoholic beverages or any other
drink of any nature, or from every sale of food and drink of any nature or of food
alone, when sold in or by restaurants, taverns or other establishments in this state, or
by caterers, including in the amount of such receipts any cover, minimum,
entertainment or other charge made to patrons or customers (except those receipts
taxed pursuant to subdivision (f) of this section)." (Emphasis supplied)
Petitioner's client's charge for parties that include both food, beverages, and entertainment,
are subject to the tax imposed under Section 1105(d)(i) of the Tax Law. Petitioner's client may take
a credit on its sales tax return for any sales tax it paid on the purchase of food and drink.

-2­
TSB-A-93 (64) S
Sales Tax
December 27, 1993
The charge by Petitioner's client for play groups (classes for preschool children) is not one of
the services encompassed within the imposition of sales tax under Section 1105(c) of the Tax Law
and therefore is not subject to sales tax unless the service is sold in conjunction with the sale of food
and drink.

DATED: December 27, 1993

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.