If a Tennessee restaurant puts pay-to-use entertainment tablets on its tables, does it owe the coin-operated amusement machine tax, and is the premium-content fee — or the rental it pays for the tablets — subject to sales tax?

Plain-English summary

The taxpayer is a restaurant company considering putting a mobile point-of-sale tablet (the "Device") on each table at some of its Tennessee locations. Guests use the touchscreen to browse the menu with photos and descriptions, place orders, pay their check (credit, debit, or gift card), and fill out satisfaction surveys. The restaurant can also turn on premium content — news, videos, sports, and interactive games — and charge guests a separate Premium Content Fee for unlimited access during their visit, added as a line item to the food-and-beverage bill at the end of the meal. The games and content live on each tablet (a closed system with no guest internet access), updated after hours. A third-party Vendor owns the tablets and charges the restaurant a monthly fee to use them.

The Department answered three questions.

1. The tablets are NOT subject to the coin-operated amusement machine tax. Tennessee taxes the privilege of owning "bona fide coin-operated amusement machines" — an annual license tax ($500 to $2,000 depending on how many machines you own) plus a $10-per-machine tax. But a device only qualifies if it delivers amusement "as a result of depositing a coin, token or other object" (§ 67-4-2203(2)). These tablets are machines, and they do provide amusement (games, videos, sports). They fail the test on one point: a guest can use the content first and pay later — the Premium Content Fee is added to the meal check at the end, so paying is not a prerequisite to access the entertainment. With no up-front deposit triggering the amusement, the tablets aren't "bona fide coin-operated amusement machines," and the coin-op tax doesn't apply.

2. The Premium Content Fee charged to guests IS subject to sales tax. Tennessee's "amusement tax" (§ 67-6-212(a)(4)) imposes sales tax on "charges made for the privilege of using tangible personal property for amusement." The premium content sits on the tablet, and a guest can only reach it by using the tablet. So whether the guest is playing games or watching videos, news, or sports, the guest is using tangible personal property for amusement — and the fee for that privilege is taxable, no matter which type of premium content it covers.

3. The Vendor's fee to the restaurant for the tablets IS subject to sales/use tax. The Vendor keeps ownership of the tablets and lets the restaurant use them for a monthly fee — that is a lease or rental of tangible personal property (§ 67-6-102(49)), and Tennessee taxes the sales price of all leases and rentals of TPP (§ 67-6-204(a)). Whatever the fee is called, it is part of the taxable rental price. And the restaurant can't buy the rental tax-free with a resale certificate, because the tablets are used by the restaurant's own customers on the restaurant's premises (Rule 1320-05-01-.32(6)).

What this means for you

Restaurants and bars using tabletop ordering/entertainment tablets

If you add tabletop tablets and charge guests for premium games or content, collect sales tax on that charge — it is a taxable amusement charge under § 67-6-212(a)(4). Separately, if you rent the tablets from a vendor, expect to pay sales/use tax on the rental fee, and don't assume a resale certificate gets you out of it: because your guests use the devices on your premises, the rental is taxable to you. The one tax you likely won't owe is the coin-operated amusement machine tax — but that turns on the specific fact below.

Why "pay later" mattered

The coin-op tax hinges on the machine delivering entertainment upon a coin/token/object deposit. Because these tablets let guests use the content first and pay at the end of the meal, they escaped the coin-op machine tax. A device that required payment up front to unlock play could reach the opposite result and be a "bona fide coin-operated amusement machine." The mechanics of when and how the customer pays can flip the tax.

Vendors that lease equipment to Tennessee businesses

Charging a Tennessee business a recurring fee to use hardware you own is a taxable lease/rental of tangible personal property in Tennessee, whatever you call the charge (service fee, license, etc.). Build the sales/use tax into your arrangement.

Accountants and tax professionals

Three separate regimes in one ruling: (a) the Coin-operated Amusement Machine Tax Act (§ 67-4-2201 et seq.) and its deposit-triggered definition (§ 67-4-2203(2)); (b) the amusement sales tax on "using tangible personal property for amusement" (§ 67-6-212(a)(4)); and (c) lease/rental taxation of TPP (§ 67-6-204(a); "lease or rental" § 67-6-102(49)). Note the resale-certificate limit (Rule 1320-05-01-.32(6)) when leased property is used by the lessee's own customers on its premises.

Common questions

Q: Are tabletop restaurant tablets taxed as coin-operated amusement machines in Tennessee?
A: Not in this ruling. They only count as "bona fide coin-operated amusement machines" if they deliver amusement upon depositing a coin, token, or object up front. These tablets let guests use the content first and pay on the meal check afterward, so they aren't coin-operated machines and that tax didn't apply.

Q: Do we charge sales tax on a "premium content" or game fee we add to a guest's bill?
A: Yes. A charge for the privilege of using tangible personal property (the tablet) for amusement is taxable under § 67-6-212(a)(4), whether the content is games, videos, news, or sports.

Q: We rent the tablets from a vendor — is that rental taxable to us?
A: Yes. It is a lease/rental of tangible personal property, taxed on the rental price under § 67-6-204(a). You generally can't use a resale certificate to avoid it, because your customers use the devices on your premises.

Q: Can I rely on this letter ruling?
A: No. A Tennessee letter ruling is binding on the Department only as to the specific taxpayer it was issued to and the facts presented, and it can be revoked or modified. Confirm your own facts with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.):

• § 67-4-2201 et seq. (Coin-operated Amusement Machine Tax Act); § 67-4-2204 (annual license tax — master license $500 / $1,000 / $2,000 by machine count); § 67-4-2205 (machine tax of $10 per machine; Department-issued sticker)
• § 67-4-2203(2) (definition of "bona fide coin-operated amusement machine" — amusement "as a result of depositing a coin, token or other object"); § 67-4-2203(6) ("master license")
• § 67-6-212(a)(4) (amusement tax — "charges made for the privilege of using tangible personal property for amusement")
• § 67-6-204(a) (tax on the sales price of all leases and rentals of tangible personal property)
• § 67-6-102(78)(A) ("sale"); § 67-6-102(49) ("lease or rental"); § 67-6-102(79)(A) ("sales price"); § 67-6-102(89)(A) ("tangible personal property"); § 67-6-102(76) ("retail sale")

Rules:

• Tenn. Comp. R. & Regs. 1320-05-01-.32(1) (1987) (sales price of leases/rentals); 1320-05-01-.32(6) (1987) (no resale certificate where leased property is used by the lessee's customers on the lessee's premises)

Case law (common usage of undefined terms):

• Tennessee Farmers Assurance Co. v. Chumley, 197 S.W.3d 767, 782–83 (Tenn. Ct. App. 2006); Beare Co. v. Tennessee Department of Revenue, 858 S.W.2d 906, 908 (Tenn. 1993)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/18-02.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 18-02
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This ruling is based on the particular facts and circumstances
presented, and is an interpretation of the law at a specific point in time. The law may have
changed since this ruling was issued, possibly rendering it obsolete. The presentation of this
ruling in a redacted form is provided solely for informational purposes, and is not intended as
a statement of Departmental policy. Taxpayers should consult with a tax professional before
relying on any aspect of this ruling.

SUBJECT
The application of the Tennessee coin-operated amusement tax and the Tennessee sales and use
tax to mobile point of sale devices used in restaurants in Tennessee.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon the
Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation or
modification shall be effective retroactively unless the following conditions are met, in which case
the revocation shall be prospective only:
(A)

The taxpayer must not have misstated or omitted material facts involved in the
transaction;

(B)

Facts that develop later must not be materially different from the facts upon
which the ruling was based;

(C)

The applicable law must not have been changed or amended;

(D)

The ruling must have been issued originally with respect to a prospective or
proposed transaction; and

(E)

The taxpayer directly involved must have acted in good faith in relying upon the
ruling; and a retroactive revocation of the ruling must inure to the taxpayer’s
detriment.
FACTS

[TAXPAYER] (the “Taxpayer”) is a [REDACTED] company with restaurant locations in Tennessee. The
Taxpayer is considering incorporating the use of a mobile point of sale device (the “Device”) at some
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of its Tennessee restaurant locations [REDACTED]. The Device, developed specifically for use in the
restaurant industry, is [REDACTED] tablet with a touch screen interface that will be placed at each
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table. The Device provides pictures and detailed descriptions of menu items and allows restaurant
guests to place [REDACTED] orders. Guests may also use the Device to pay their checks by credit
card, debit card, or gift card, and to complete guest satisfaction surveys.
The Taxpayer’s restaurants have the option of providing guests access to premium content located
on the Device. Premium content could include access to news, videos, sports, and interactive games.
The Taxpayer will charge guests a separate fee for unlimited access to premium content (the
“Premium Content Fee”) during their restaurant visit. The Premium Content Fee will be included as a
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line item on the guest’s food and beverage bill and is paid at the end of the meal. [REDACTED].
The Device is on a closed system and does not provide guests with internet access. The game
application software resides within each Device. Updates to content on each Device occur after
hours; there are no real time updates.
A third-party vendor (the “Vendor”) owns the Devices and will charge the Taxpayer a monthly service
fee for use of the Devices. In an alternative arrangement, the Taxpayer may pay the Vendor
[REDACTED].
RULINGS

1. Are the Devices subject to the Tennessee coin-operated amusement machine tax?
   Ruling: No. The Devices are not subject to the Tennessee coin-operated amusement
   machine tax because they are not bona fide coin-operated amusement machines.
2. Are Premium Content fees that the Taxpayer charges restaurant guests subject to the
   Tennessee sales and use tax?
   Ruling: Yes. The Premium Content Fees are subject to the Tennessee sales tax as charges
   made for the privilege of using tangible personal property for amusement under TENN. CODE
   ANN. § 67-6-212(a)(4), regardless of whether the fees cover only access to games or to any
   type of premium content on a Device.
3. Are the fees that the Vendor charges the Taxpayer for use of the Devices subject to the
   Tennessee sales and use tax?
   Ruling: Yes. The fees that the Vendor charges the Taxpayer for use of the Devices, regardless
   of their characterization, are subject to the Tennessee sales and use tax.

ANALYSIS

1

[REDACTED].

2

[REDACTED].

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COIN-OPERATED AMUSEMENT MACHINE TAX
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Under the Coin-operated Amusement Machine Tax Act, the privilege of owning bona fide coinoperated amusement machines for commercial use by the public in Tennessee is subject to both an
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annual license tax and a machine tax.
The annual license tax is based on the number of bona fide coin-operated amusement machines
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available for commercial use by the public at a specific business location. There are three levels of
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annual license tax. Owners of fifty or fewer machines are required to pay a master license tax of
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$500 to obtain a level one license. Owners of between fifty-one and two hundred machines are
10
required to pay a master license tax of $1,000 to obtain a level two license. Owners of more than
two hundred machines are required to pay a master license tax of $2,000 to obtain a level three
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license.
In addition to obtaining an annual license, owners must pay a machine tax of $10 for each bona fide
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coin-operated amusement machine offered for commercial use and play by the public. Upon
receipt of the machine tax, the Department issues the owner a sticker to affix to each bona fide coin13
operated amusement machine.
For purposes of both the annual license tax and the machine tax, TENN. CODE ANN. § 67-4-2203(2)
defines a “bona fide coin-operated amusement machine” as “any coin or token operated game,
machine or device that, as a result of depositing a coin, token or other object, automatically or by or
through some mechanical or electronic operation involving skill, chance, or a combination thereof,
affords music, amusement, or entertainment of some character without vending any merchandise.”
Accordingly, the Taxpayer’s Devices will be subject to the coin-operated amusement machine tax if
they are (1) games, machines, or devices (2) that upon the deposit of a coin, token, or other object,

3

TENN. CODE ANN. § 67-4-2201 et seq. (2013).

4

TENN. CODE ANN. § 67-4-2204 (2013).

5

TENN. CODE ANN. § 67-4-2205 (2013).

6

TENN. CODE ANN. § 67-4-2204(a) and (g).

7

TENN. CODE ANN. § 67-4-2204(a)(1)-(3).

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“‘Master license’ means the certificate that every owner of a bona fide coin-operated amusement machine must obtain and
display in the business owner’s or business operator’s place of business where the machine is located for commercial use by
the public for play, in order to operate the machine in this state legally.” TENN. CODE ANN. § 67-4-2203(6) (2013).

9

TENN. CODE ANN. § 67-4-2204(a)(1).

10

TENN. CODE ANN. § 67-4-2204(a)(2).

11

TENN. CODE ANN. § 67-4-2204(a)(3).

12

TENN. CODE ANN. § 67-4-2205(a).

13

TENN. CODE ANN. § 67-4-2205(b).

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automatically or by or through some mechanical or electronic operation (3) afford music,
amusement or entertainment.
The Devices meet the first qualification to be considered bona fide coin-operated amusement
machines because they are machines or devices. Neither the Tennessee Code nor the Tennessee
courts have defined the terms “machine” or “device” for purposes of Tennessee’s Coin-operated
Amusement Machine Tax Act. The Tennessee Supreme Court has stated that when a statute does not
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define a term, it is proper to look to common usage to determine the term’s meaning. The Devices here
are clearly machines or devices under the common usage of the terms.
Additionally, the Devices meet the qualification of affording music, amusement, or entertainment
because a restaurant guest can use a Device to play games, and access news, videos, and sports
content.
However, the Devices do not meet the second qualification because they are not operated
automatically or through some mechanical or electronic operation upon the deposit of a coin, token,
or other object. A restaurant guest may choose to play a game or access other premium content on
a Device without first paying for that access. After a restaurant guest accesses the premium content,
the restaurant adds the Premium Content Fee to the guest’s food and beverage bill that is paid at
the end of the meal.
Because payment is not a prerequisite for gaining access to the premium content, the Devices do
not meet the second qualification. Consequently, the Devices are not bona fide coin-operated
amusement machines as defined under TENN. CODE ANN. § 67-4-2203(2) and are not subject to the
coin-operated amusement machine tax.
SALES AND USE TAX
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Under the Retailers’ Sales Tax Act, the retail sale in Tennessee of tangible personal property and
specifically enumerated services are subject to the sales and use tax, unless an exemption applies.
“Retail sale” is defined as “any sale, lease, or rental for any purpose other than for resale, sublease,
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or subrent.”
TENN. CODE ANN. § 67-6-102(78)(A) (Supp. 2017) defines “sale,” in pertinent part, to mean “any transfer
of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any
manner or by any means whatsoever of tangible personal property for a consideration.” “Tangible
personal property” includes “property that can be seen, weighed, measured, felt, or touched, or that
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is in any other manner perceptible to the senses.”

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See, e.g., Tenn. Farmers Assur. v. Chumley, 197 S.W.3d 767, 782-83 (Tenn. Ct. App. 2006); Beare Co. v. Tenn. Dep’t of Revenue, 858
S.W.2d 906, 908 (Tenn. 1993).

15

Tennessee Retailers’ Sales Tax Act, Ch. 3, §§ 1-18, 1947 Tenn. Pub. Acts Ch. 22, §§ 22-54 (codified as amended at TENN. CODE
ANN. §§ 67-6-101 to -907 (2013 & Supp. 2017)).
16

TENN. CODE ANN. § 67-6-102(76) (Supp. 2017).

17

TENN. CODE ANN. § 67-6-102(89)(A).

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Premium Content Fees
The Premium Content Fees that the Taxpayer charges restaurant guests for the use of the Devices
are subject to sales tax under TENN. CODE ANN. § 67-6-212(a)(4) (2013) because they are fees charged
for using tangible personal property for amusement.
TENN. CODE ANN. § 67-6-212, informally referred to as the “amusement tax,” imposes the sales tax on
certain recreational and entertainment activities. Specifically, the amusement tax applies to
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“[c]harges made for the privilege of using tangible personal property for amusement.”
The Taxpayer’s guests pay Premium Content Fees for access to premium content, [REDACTED].
{REDACTED].
The premium content is stored on each Device, and restaurant guests can only access such content
by using the Device. Whether accessing games, videos, news, sports, or any other available content
located on a Device, guests using the Devices to access premium content are using tangible personal
property for amusement or entertainment. Therefore, the Premium Content Fees are subject to the
Tennessee sales tax under TENN. CODE ANN. § 67-6-212(a)(4).
Vendor Fees
Regardless of their characterization, the fees that the Vendor charges the Taxpayer for use of the
Devices are subject to the Tennessee sales and use tax as the lease of tangible personal property for
consideration.
As discussed above, “sale” is defined in pertinent part as “any transfer of title or possession, or both,
exchange, barter, lease, or rental, conditional or otherwise, in any manner or any means whatsoever
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of tangible personal property for a consideration.” “Lease or rental” is the “transfer of possession
or control of tangible personal property for a fixed or indeterminate period of time for
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consideration.”
TENN. CODE ANN. § 67-6-204(a) (2013) imposes tax on the “sales price of all leases and rentals of
tangible personal property.” The “sales price” upon which tax is due is the “total amount of
consideration paid, including cash, credit, property, and services, for which personal property or
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services are sold, leased, or rented, valued in money, whether received in money or otherwise.”
Under the terms of the service agreement between the Taxpayer and the Vendor, the Taxpayer pays
the Vendor a monthly service fee for use of the Devices. Alternatively, the Taxpayer will pay the
Vendor [REDACTED].

18

TENN. CODE ANN. § 67-6-212(a)(4) (2013).

19

TENN. CODE ANN. § 67-6-102(78)(A).

20

TENN. CODE ANN. § 67-6-102(49).

21

TENN. CODE ANN. § 67-6-102(79)(A). See also TENN. COMP. R. & REGS. 1320-05-01-.32(1) (1987).

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The Vendor is transferring possession of the Devices, which are tangible personal property, to the
Taxpayer for a consideration, without transferring title to the Devices. Thus, the Vendor is leasing or
renting tangible personal property to the Taxpayer, and such transfer is subject to the Tennessee
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sales and use tax. Any fees the Taxpayer pays the Vendor are part of the sales price of such lease
or rental, regardless of how they are characterized.

M. Bernadette Welch
Senior Tax Counsel

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

5/21/18

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The Taxpayer cannot issue the Vendor a resale certificate in this situation. It is important to note that generally speaking a
taxpayer cannot use a resale certificate in circumstances similar to this one where the tangible personal property the
taxpayer is leasing is only being used by the taxpayer’s customers on the taxpayer’s premises. See TENN. COMP. R. & REGS. 132005-01-.32(6) (1987).

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