Taxability of Sales of Play Cards Used With Arcade Games or Rides
August 29, 2016
This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated July 13, 2016.
The facts as presented in your letter ruling request are summarized as follows:
Applicant operates and franchises family dining and entertainment centers in Missouri and other states and countries. Applicant's centers offer meals and drinks as well as entertainment offerings such as video games, skill games, arcade-style rides similar to those found in game arcades, outside grocery stores, or at shopping outlets (but not amusement park rides such as roller coasters), musical and comical shows, and other attractions. The majority of the games allow customers to accumulate tickets as they play the games. These tickets may be exchanged for prizes. Historically, Applicant's games and arcade-style rides were activated by inserting either a token or a quarter into a slot located at the front of the game or arcade-style ride.
Applicant is converting its games and arcade-style rides to be activated by a branded play card that is a stored-value card, but it does not store a dollar value as in the case of a gift card or credit card. The play cards store points that can only be used for playing games and arcade-style rides at Applicant's centers in place of the tokens previously used. The play cards cannot be used for purchasing meals and drinks in Applicant's centers.
The previous coin-slot mechanisms on the games and arcade-style rides have been replaced with readers for the play cards, and each game or arcade-style ride is activated by tapping the play card on the game or arcade-style ride. As a customer plays games or arcade-style rides, the balance on the play card declines. The current remaining balance on a play card is displayed on the reader after it is tapped to begin a game or arcade-style ride. Some games still require a token or coin as part of the play action. These games are played by tapping the play card against the reader. A token is then dispensed by the game so play may be started with the token.
The points on the play cards do not expire and are not subject to a maintenance fee. Points from other play cards may be added to a play card. Remaining points on the play card after a visit may be used at subsequent visits to one of Applicant's centers. The play cards may also be registered by the customers so cards may be replaced in the event they are lost or stolen. In the future, Applicant hopes to use the play cards to keep track of prize tickets and to launch an expanded customer loyalty program.
When Applicant purchases games, arcade-style rides, or repair parts for the same, Applicant pays the appropriate sales or use tax on such purchases.
Are Applicant's sales of play cards for use with their games or arcade-style rides subject to sales tax?
No. Applicant's sales of play cards for use with their games or arcade-style rides are not subject to sales tax. Applicant should pay sales or use tax on its purchase of the cards.
Section 144.020.1, RSMo, in the pertinent part, imposes a sales tax "upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state." Among other things, Subdivision (2) of Section 144.020.1, RSMo, imposes a sales tax on "fees paid to, or in any place of amusement, entertainment or recreation, games and athletic events[,] and Subsection (8) of Section 144.020.1, RSMo, imposes a sales tax on "the amount paid or charged for rental or lease of tangible personal property" unless tax had already been paid by the lessor on the purchase of the item rented or leased.
Section 144.518.2, RSMo, in the pertinent part, provides an exemption from sales tax for "amounts paid for the temporary use of a coin-operated amusement device." For purposes of the exemption, "coin-operated amusement device" means "a device accepting payment or items representing payments to allow one or more users temporary use of the device for entertainment or amusement purposes" such as "video games, pinball games, table games such as billiards and air hockey, and redemption games such as the claw and skee ball that may award prizes of tangible personal property." Section 144.518.3, RSMo.
The play cards sold by Applicant are solely used to activate its games or arcade-style rides. Applicant's games or arcade-style rides are coin-operated amusement devices for purposes of the exemption from sales tax provided by Section 144.518.2, RSMo. Therefore, Applicant's sales of play cards are exempt from the sales tax imposed by Subdivisions (2) and (8) of Section 144.020.1, RSMo. Applicant should pay sales or use tax on its purchase of the cards.
This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change. For this reason, the interpretation set forth above should be reviewed on a regular basis. Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.
Should additional information be needed, please contact Senior Counsel Stephen P. Sullivan, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573-751-0961), or me.