Is the sale of electronic tokens/credits used to play phone-based casino-style games taxable in Texas, when winning tokens also enter callers into a weekly raffle drawing?

Plain-English summary

A business asked the Comptroller about the sales tax treatment of a PC-based phone system offering "mostly casino type amusement" to callers. Customers bought non-physical tokens/credits in advance by mail, which were held on account. Callers logged in by touch-tone phone with an ID and PIN, and each token they spent — whether for information, account updates, or playing the casino-style games — also entered their phone number into a weekly drawing/raffle; winning a game entered the caller's number multiple times. Raffle winners received only additional electronic tokens as prizes (no cash or other prizes are described).

The Comptroller's response was short and direct: the sale of the tokens/credits is taxable as an amusement. The letter did not treat the raffle mechanic as changing that answer — the underlying transaction taxed is the sale of tokens/credits used to access the amusement service.

The letter also raised a legality concern unrelated to sales tax: it noted that raffles are generally not legal in Texas, except for certain nonprofit groups, and suggested the business contact the Texas Attorney General's Office about its new venture if it had not already done so.

Note on the file name: despite this ruling's file name/subject referencing "raffles," the letter is not primarily about raffle authority or ticket sales — it is about the taxability of selling tokens/credits for a phone-based casino gaming service, with a raffle feature layered on top and a passing warning about raffle legality. The subject_title field above has been corrected to reflect the letter's actual content.

What this means for you

Businesses selling access credits, tokens, or "plays" for games or amusement

If you sell tokens, credits, or similar non-physical units that customers redeem to play games or access amusement content — including over the phone or online — the Comptroller treats the sale of those tokens/credits as a taxable amusement service. Adding a sweepstakes, raffle, or bonus-entry feature on top does not appear to change that underlying taxability.

Businesses considering raffle-style promotions in Texas

This letter flags that raffles are generally illegal in Texas except for certain qualifying nonprofit organizations. If your promotion involves a raffle or drawing, that is a separate legal question from sales tax, and this letter suggests confirming your business's legality with the Texas Attorney General's Office.

Common questions

Q: Is selling electronic tokens/credits for a phone-based casino-style game taxable in Texas?
A: Yes. The Comptroller determined the sale of the tokens/credits is taxable as an amusement.

Q: Does layering a raffle or drawing on top of a token-based game change the sales tax answer?
A: The letter doesn't suggest so — it taxes the sale of the tokens/credits themselves as an amusement, regardless of the raffle feature.

Q: Are raffles legal in Texas?
A: According to this letter, raffles are generally not legal in Texas, except for certain nonprofit groups. The letter suggested the business confirm this with the Texas Attorney General's Office.

Q: Can I rely on this letter for my own business?
A: No. The letter states its opinion is based on the facts presented and current law, and that different facts, though similar, may result in different answers. STAR letters can only be relied on by the specific taxpayer to whom they were issued.

Citations and references

No specific Texas statutes or administrative rules are cited in the body of this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9601947L

Original ruling text

January 12, 1996

Dear **:

Thank you for your letter dated January 8, 1996, concerning the taxability of
computer gambling.

Facts: You are setting in place a PC-based computer system providing mostly
casino type amusement to callers utilizing a touch-tone phone. Clients
purchase non-physical tokens/credits in advance by mail which are held
electronically on account. Customers may access the system by touch-tone phone
with a previously issued ID and PIN number combination. If a positive account
balance is found, they may continue. They are charged an "electronic" token
for information received, personal account updates, or to play the casino
games.

Each time a caller spends a token, their phone number is entered into a weekly
drawing/raffle. The computer randomly selects numbers for the stated
amusement/entertainment purpose. If a caller wins the casino game, their phone
number is multiply entered into the raffle - depending on the game played.
Each week, random numbers are again used to determine raffle winners. They only
win additional electronic tokens in the raffle.
Response: We have determined that the sale of the tokens/credits are taxable as
an amusement.

If you have not yet contacted the Attorney General's Office regarding your new
business, we suggest that you do so. It is our understanding that raffles are
not legal in Texas (except for certain nonprofit groups).

This opinion is based on the facts presented and current law. Different facts
though similar, may result in different answers.

You may call or write me for additional information or if you have any
questions. The toll free number is 1-800-531-5441, and my extension is 50330.
The direct line is 512/4750330. You may also write to Tax Policy Division,
Comptroller of Public Accounts.

Sincerely,

Bettie Peterson
Tax Policy Division