Department of Finance and Administration

Transcription

1 STATE OF ARKANSAS Department of Finance and Administration REVENUE LEGAL COUNSEL Post Office Box 1272, Room 2380 Little Rock, Arkansas Phone: (501) Fax: (501) March 21, 2018 RE: Gross Receipts Tax Taxability of Tabletop Tablets Opinion No Dear, The Department is in receipt of your June 22, 2015 letter requesting an opinion on the taxability of tablets installed at restaurant tabletops. You represent ( the Restaurant ). The Restaurant seeks an opinion regarding the taxability of mobile point of sale tablet devices ( tablets ) at its establishments. Per your letter, the tablets provide customers ( Customers ) with the ability to view a tabletop menu, order meals, and pay their check through the device. These services are provided to the customer for free. In addition, Customers may access premium content for a fee which is separately stated on their final bill. The premium content includes news, sports, access to social media, selecting songs to be played on the restaurant s playlist, as well as access to interactive games. Customers may use the tablets to pay the final bill by card payment. The tablets are owned by a third-party vendor ( Vendor ) and provided to the Restaurant through a leasing arrangement. At this point, the Restaurant is contemplating two separate leasing scenarios with the Vendor. In the first scenario, the Restaurant would pay a monthly service fee for the use of the devices, along with a possible commission for premium content fees generated. In the second scenario, the Vendor would not charge a monthly service fee, but would instead collect all the premium content fees up to a certain threshold. After that, the Vendor and the Restaurant would share in the profit generated from the premium content access. In subsequent discussion, you indicated that the tablet rental and the premium content fee arrangement are set out in one agreement. You provided a redacted copy of the Service Agreement ( Agreement ) for the Department s review. Pursuant to Appendix One Fees and Payment Terms of the Agreement, the Restaurant is required to pay the following fees to the Vendor: (a) [Redacted] Service Fees. Customer shall pay an amount equal to $[Redacted] per Customer Billing Period per installed Restaurant (based on [Redacted] Displays per installed Restaurant) ( [Redacted] Service Fees ) [Redacted] Service Fees Page 1 of 7

2 shall be: (i) adjusted by ±$[Redacted] per [Redacted] Display per Customer Billing Period if the total number of [Redacted] Displays per installed Restaurant is less than or greater than [Redacted] Displays per installed Restaurant, as the case may be; and/or (ii) prorated if a [Redacted] Display has been installed for less than a full Customer Billing Period. (b) Premium Content Fees: If Customer s Premium Content Revenues collected in any Customer Billing Period exceeds the total amount of all [Redacted] Service Fees payable with respect to such Customer Billing Period, Customer shall pay an amount equal to %[Redacted]% of such excess ( Premium Content Fees ). 1. Sales Tax Generally APPLICABLE LAW All sales of tangible personal property and specified digital products 1 are subject to gross receipts tax, unless the items are specifically exempted by law. Ark. Code Ann (1)(Repl & Supp. 2017). Arkansas Code Annotated (26)(A)(Repl. 2014) defines a sale as any a transfer of either title or possession of tangible personal property, specified digital products, or a digital code A sale includes an exchange, barter, lease or rental of tangible personal property, specified digital products, or a digital code. Ark. Code Ann (26)(A)(Repl & Supp. 2017). Gross receipts is defined as the total amount of consideration, including cash, credit, property, and services, for which tangible personal property, specified digital products, a digital code, or services are sold, leased, or rented, valued in money, whether received in money or otherwise. Ark. Code Ann (13)(A)(Repl & Supp. 2017) Tangible personal property means personal property that can be seen, weighed, measured, felt, or touched or that is in any other manner perceptible to the senses. Ark. Code Ann (30)(Repl. 2014, Supp. 2017). Specified digital products are defined as digital audio works, digital audio-visual works, and digital books. Ark. Code Ann (29)(Repl & Supp. 2017). Arkansas Gross Receipts Tax Rule GR-93 provides that if various services and products being provided are not billed separately they are considered to be a bundled transaction. Except as otherwise provided in Arkansas Gross Receipts Tax Rule GR-93, sales tax must be collected on the total sales price of a bundled transaction if any product included in the bundled transaction would be taxable if charged or sold separately. See Arkansas Gross Receipts Tax Rule GR- 93(A). 1 The specified digital products must be sold to (i) a purchaser who is an end user and (2) with the right of permanent use or less than permanent use granted by the seller regardless of whether the use is conditioned on continued payment by the purchaser. Ark. Code. Ann (1)(B)(Repl. 2014, Supp. 2017). Page 2 of 7

3 2. Rentals Persons in the business of leasing or renting articles of tangible personal property to consumers must collect and remit tax upon the gross receipts derived from the lease or rental of the property. Arkansas Gross Receipts Tax Rule GR-20. In the case of a rental of tangible personal property for less than thirty (30) days, tax shall be paid on the basis of rental or lease payments made to the lessor of the tangible personal property during the term of the lease or rental regardless of whether Arkansas gross receipts tax or compensating use tax was paid by the lessor at the time of the purchase of the tangible personal property. Ark. Code Ann (19)(D)(ii)(a). In the event of a rental for thirty (30) days or more, tax shall be paid on the basis of rental or lease payments made to the lessor of the tangible personal property during the term of the lease or rental unless Arkansas gross receipts tax or compensating use tax was paid by the lessor at the time of the purchase of the tangible personal property. In addition to the sales tax, Arkansas levies a short-term rental tax of one percent (1%) on the gross receipts received from the short-term rental of period of less than thirty days of tangible personal property. Ark. Code Ann (Repl. 2008); Arkansas Excise Tax Rule ET- 4(A) and ET Gaming Devices, Coin Operated Machines, and Admission/Amusement Fees Arkansas Code Annotated (1)(Repl & Supp. 2017) defines amusement devices as any coin-operated machine, device, or apparatus which provides amusement, diversion, or entertainment. Any person who operates an amusement device must hold an Amusement Machine Operator's License pursuant to Ark. Code Ann et seq. and obtain an Arkansas sales tax permit, and report and remit gross receipts tax. Coin-operated is defined by statute as a machine, device, or apparatus that is operated by placing through a slot or any kind of opening or container a coin, slug, token, or other object or article necessary to be inserted before the machine operates or functions. Ark. Code Ann (4) (Repl. 2014). In addition to gross receipts tax, an annual privilege tax in the amount of $5.00 is imposed on each machine. Upon payment of the annual privilege tax, a license tag is issued which states the period the machine may be operated and which must be attached to the machine before placing it into operation. Additionally, licenses for the privilege of owning, operating or leasing coinoperated amusement devices must be obtained and an annual license fee paid. Ark. Code Ann (a)(Repl. 2014). Prior to the issuance of any license, a suitable surety bond in the principal sum of $6,000 must be procured. Ark. Code Ann (Repl. 2014). The gross receipts or gross proceeds derived from coin-operated pinball machines, coin-operated music machines, coin-operated mechanical games, and similar devices are subject to sales tax. See Ark. Code Ann (Repl & Supp. 2017) and Arkansas Gross Receipts Tax Rule GR-16. Arkansas law provides that the sale of [t]ickets or admissions to places of amusement or to athletic, entertainment, or recreational events, or fees for access to or the use of amusement, entertainment, athletic, or recreational facilities are subject to Arkansas gross receipts/sales tax. Page 3 of 7

4 Ark. Code Ann (5) (Repl & Supp. 2017). The Arkansas Gross Receipts Tax Rules further provide as follows: The gross receipts or gross proceeds derived from all sales of tickets or admissions to places of amusement, or to athletic, entertainment or recreational events are subject to the tax. Fees for the privilege of having access to or the use of amusement, entertainment, athletic, or recreational facilities are subject to the tax; except such sales by municipalities are exempt. All admissions or fees paid for the privilege of having access to places of amusement, or to athletic, entertainment or recreational events are subject to tax, regardless of whether the fee charged is called a "membership" and allows access for one or more times, or for a fixed period of time. Tickets or admissions purchased by members for the purpose of having access to special entertainment events, even though these events may be held on a regular basis, are also subject to the tax regardless of who collects the fees for the ticket or admission. Arkansas Gross Receipts Tax Rule GR-11(A). 4. Specified Digital Products During the 91 st General Assembly, legislation was adopted to require the collection of sales and use tax on purchases of specified digital products. Acts 2017, No. 141, Section 15. Arkansas Code Annotated (29) (Repl & Supp. 2017) provides that when transferred electronically, specified digital products include: (1) Digital audio works, which means works that result from the fixation of a series of musical, spoken, or other sounds. Ark. Code Ann (9) (Repl & Supp. 2017); (2) Digital audio-visual works, which means a series of related images that, when shown in succession, impart an impression of motion, together with accompanying sounds, if any. Ark. Code Ann (10) (Repl & Supp. 2017); and (3) Digital books, which means works that are generally recognized in the ordinary and usual sense as books. Ark. Code Ann (11)( Repl & Supp. 2017). ANALYSIS 1. Based on the multifunctional nature of the Mobile Point of Sale Device, and given the primary purpose of order placement and payment, does the Revenue Legal Counsel ( Counsel ) consider the Device to constitute an amusement device subject to the $5 per amusement device privilege tax (decal fee), license fees for an operator or distributor, and surety bond for an operator or distributor under Ark. Code Ann et seq.? Page 4 of 7

5 Response. The tablets are functional before the deposit of any coin, slug, token or other object and are accordingly not coin-operated; therefore, they would not be considered an amusement device under applicable Arkansas law. The Restaurant will not be required to obtain a decal for these devices. 2. Based on the multifunctional nature of the Mobile Point of Sale Device, and given the primary purpose of order placement and payment, does the Counsel consider the Device to constitute a coin-operated machine, subject to the 3% gross receipts tax under Ark. Code Ann and Ark. Reg. GR-16? Response. The tablets are not coin operated; therefore, they would not be considered a coinoperated machine. The Restaurant will not be required to remit gross receipts tax or register the devices under the authority of Ark. Code Ann and Arkansas Gross Receipts Rule GR Based on the multifunctional nature of the Mobile Point of Sale Device, and given the primary purpose of order placement and payment, does the Counsel consider any fee received for use of the Device to constitute an admission/amusement fee subject to the 3% (sic) 2 gross receipts tax under Ark. Code Ann (5)? Response. Use of the tablet to access Premium Content does not amount to a ticket or admission to a place of amusement or fee for access to or for the use of amusement, entertainment, athletic or recreational facilities. The Restaurant will not be required to remit gross receipts tax on the lease or sale of premium content under the authority of Ark. Code Ann (5). 4. Are the premium content fees paid to the Vendor, who retains title to the devices, subject to tax as a lease or rental of tangible personal property? If so, and the Vendor is not registered to collect and remit this tax, can the Company self-accrue use tax on the amount deemed as rental payments to the Vendor? Additionally, would both the excise tax for short-term rentals in accordance with Ar. Reg. GR-4 apply? Response. Before responding to this inquiry, it is important to distinguish the existence of two separate transactions. Per the fact scenario presented to the Department, charges for premium content are collected by the Restaurant and reflected on the same bill (though separately itemized) with the customer s ticket from the Restaurant. This constitutes the first transaction. When a percentage of those charges for premium content are passed along by the Restaurant to the Vendor as premium content fees, there is a second transaction. Each transaction is a separate sale. The Department will address the taxability of sales between the Restaurant and its customers below, but will focus on this inquiry under the presumption that this question references premium content fees paid by the Restaurant to the Vendor as consideration for the lease of the tablets. The Agreement provides an arrangement whereby the Vendor retains title to the tabletop tablets 2 The Department notes that the total Arkansas gross receipts tax is currently 6.5%, before the addition of any county or city tax. Page 5 of 7

6 and leases the use of these tablets to the Restaurant in consideration of service fees and premium content fees paid to the Vendor. If the tablets are leased for thirty days or more and the Vendor initially paid Arkansas sales or compensating use tax, then the Vendor will not be required to collect sales tax on the rental consideration. If the Vendor did not initially pay Arkansas sales or compensating use tax, then the Vendor should collect sales tax on the monthly lease consideration (service fees and any premium content fees paid). If the tablets are leased for less than thirty days, the Vendor must collect sales tax on the rental of the tablets, regardless of whether it paid Arkansas sales and use tax on the initial acquisition of the tablets and the Vendor will be responsible for collecting and remitting an additional 1% excise tax (in addition to sales tax) from the Restaurant. The Vendor has tangible personal property in the state of Arkansas and, therefore, has nexus with the state. It is the Vendor s responsibility to collect and remit sales tax from the Restaurant. 5. Are the premium content fees described as commissions paid to the Vendor, who retains title to the devices, subject to tax as the rental of or license to use tangible personal property? If so, and the Vendor is not registered to collect and remit this tax, can the Company self-accrue use tax on the amount deemed as rental or license payments to the Vendor? Response. The premium content fees would be considered part of the total amount of consideration for which the tangible personal property is leased. Per the Agreement, the Restaurant is obligated to pay a service fee. To the extent that the revenue from premium content would be over and above the amount paid in a service fee, the Restaurant must also pay a percentage of that revenue as a premium content fee. This, combined with the service fee, constitutes the consideration for the lease of the tablets. 3 As for the responsibility to collect and report this tax, please refer to Response to Question Based on the information provided, would the following fees charged for access to the premium content be subject to gross receipts tax: a. Fee for unlimited access to games that are stored on the Device; If so, are such fees properly categorized as a rental or license to use tangible personal property? b. Fee for unlimited access to current news events and social media; If so, are such fees properly categorized as either Internet access or a telecommunications service? c. Fees for songs that are selected to be played in the Restaurant; if so, are such fees properly categorized as a rental or license to use tangible personal property, a digital good or a telecommunications service? Response. This question appears to inquire about the transaction between the Customer and the Restaurant. A sale occurs between the Customer and the Restaurant when the Customer pays the premium content fees to access premium content. The Customer is not charged to use the tablet 3 Additionally, the Restaurant contemplated a scenario where the Restaurant might collect only premium content fees as consideration for the lease of the tablets. In that case, the premium content fees would still be the consideration for the lease and gross receipts tax would be applicable (unless it was a long-term rental where the Vendor previously paid Arkansas sales or compensating use tax). Page 6 of 7

7 for other functions, such as placing orders and paying his or her ticket. Accordingly, the Customer is not renting the tablet from the Restaurant. Instead, the Customer may choose to pay premium content fees to access digital content on the tablet. You have indicated that the premium content available to Customers via the tablet include access to news, sports, access to social media, selecting songs to be played on the restaurant s playlist, as well as access to interactive games. You have indicated that the device operates on a closed system, therefore, there is no livestreaming or access to broadcast content. Fees for unlimited access to games, news events, and social media would not reflect a purchase that is taxable under Arkansas law. However, the ability to select songs would reflect the purchase of a digital audio work as defined by Ark. Code Ann (29)(Repl. 2014, Supp. 2017), even if only to be broadcast on the Restaurant s playlist. Accordingly, gross receipts tax should be collected on the purchase of song selections. Please note that if the Restaurant charges a single fee for access to multiple features, including song selection, and does not itemize the charges for each of the items separately, gross receipts tax will be due on the single bundled transaction as defined in Arkansas Gross Receipts Tax Rule GR If a single premium content fee is charged for unlimited access to games stored on the Device and unlimited access to current news events and social media, how will Arkansas view this single charge? Response. Because the sale of these goods is not taxable, it is immaterial how the consideration for the premium content is received. 8. If the premium content fees are determined to be taxable in accordance with Ark. Reg. GR-20, does the Counsel consider the [the Restaurant s] use of each Device to include both a license to use the Device and taxable business use, in which case both revenue streams would be subject to tax? Additionally, would both the excise tax for short-term rentals in accordance with Ar. Reg. GR-4 apply? Response. Please review Responses to Questions 1 through 7. This opinion is based on my understanding of the facts as set out in your inquiry as those facts are governed by current Arkansas laws, rules and regulations. Any change in the facts or law could result in a different opinion. You may rely on this opinion for three years pursuant to Ark. Gross Receipts Tax Rules GR-75(B). Sincerely, Lauren Ballard, Attorney Revenue Legal Counsel Page 7 of 7