Could a token-pusher machine awarding toys, food, and gift cards qualify as an Illinois redemption machine or coin-operated amusement device?

Plain-English summary

The described token-pusher machine did not clearly fit either Illinois category, and the Department lacked enough facts for a definitive answer. The machine accepted and dispensed tokens and offered promotional items including toys, food, and gift cards.

A redemption machine had to involve a game using a physical ball or other object directed into, upon, or against a hole or target. It also had to satisfy all five statutory conditions: predominantly skill-based play, prize based on achieving the game object or score, merchandise-only prizes, and the two stated prize-value limits. The Department emphasized that gift cards were not merchandise.

A coin-operated amusement device was defined as a coin-, token-, or similar-object-operated device that returned no money, property, or right to receive money or property. A machine allowing credits to be redeemed for gift cards that could be used to obtain property generally did not meet that definition.

The GIL did not decide whether the machine could lawfully operate under some other classification.

What this means for you

Before installing a token or prize machine, document the exact game mechanics, whether skill predominates, what physical object and target are involved, every prize type, and prize/redemption values. Gift cards create a specific problem under the 2011 definitions: they were not merchandise for the redemption-machine test, yet they gave a right to receive property for the coin-operated-device test.

Common questions

Q: Could a redemption machine award gift cards?
A: No under the rule described. The Department said gift cards did not qualify as merchandise.

Q: Did credits redeemable for gift cards fit the coin-operated amusement-device definition?
A: Generally no, because that category required the device to return no property or right to receive property.

Q: Did the Department approve or prohibit this particular machine?
A: Neither. It said the facts were insufficient and gave only the governing definitions.

Subject

C.O.A.D.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0030.pdf

Original ruling text

ST 11-0030-GIL 04/08/2011 C.O.A.D.

In general, machines that allow players to accumulate credits that may be redeemed for gift
cards that the players can use to receive property do not meet the definition of a coin-operated
amusement device subject to tax under the Coin-Operated Amusement Device and
Redemption Machine Tax Act. See 35 ILCS 510/1 et seq. and the corresponding regulations
at 86 Ill. Adm. Code 460.101 et seq. (This is a GIL.)

April 8, 2011

Dear Sir or Madam:

This letter is in response to your letter received in this office on March 28, 2011, in which you
request information. The Department issues two types of letter rulings. Private Letter Rulings
(“PLRs”) are issued by the Department in response to specific taxpayer inquiries concerning the
application of a tax statute or rule to a particular fact situation. A PLR is binding on the Department,
but only as to the taxpayer who is the subject of the request for ruling and only to the extent the facts
recited in the PLR are correct and complete. Persons seeking PLRs must comply with the
procedures for PLRs found in the Department's regulations at 2 Ill. Adm. Code 1200.110. The
purpose of a General Information Letter (“GIL”) is to direct taxpayers to Department regulations or
other sources of information regarding the topic about which they have inquired. A GIL is nota
statement of Department policy and is not binding on the Department. See 2 Ill. Adm. Code
1200.120. You may access our website at www.tax.illinois.gov to review regulations, letter rulings
and other types of information relevant to your inquiry.

The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:

We have recently purchased our own token pusher machine similar to what is at
Chucky Cheese. It takes and dispenses tokens and permotional [sic] items for our store
such as toys, pop, pizza gift cards, but no cash value.

We wish to know what is required by the state to own and operate this machine. Please
send us this information.

DEPARTMENT’S RESPONSE:

Your letter does not provide sufficient information regarding the machine referenced in your
letter to provide a definitive response. We hope the following will be helpful in addressing your
question.

The Coin-Operated Amusement Device and Redemption Machine Tax Act, 35 ILCS 510/1 et
seq., provides that “there is imposed, on the privilege of operating every coin in the slot operated
amusement device, including a device operated or operable by insertion of coins, tokens, chips or
similar objects, in this State which returns to the player thereof no money or property or right to

receive money or property, and on the privilege of operating in this State a redemption machine as
defined in Section 28-2 of the Criminal Code of 1961, an annual privilege tax of $30 for each device
for a period beginning on or after August 1 of any year and prior to August 1 of the succeeding year.”

Under Section 28-2 of the Criminal Code of 1961, 720 ILCS 5/28-2(a)(4), a redemption
machine is: ...a single-player or multi-player amusement device involving a game, the object of which
is throwing, rolling, bowling, shooting, placing, or propelling a ball or other object into, upon, or
against a hole or other target, provided that all of the following conditions are met:

(A) |The outcome of the game is predominantly determined by the skill of the player.

(B) |The award of the prize is based solely upon the player’s achieving the object of
the game or otherwise upon the player’s score.

(C) Only merchandise prizes are awarded.

(D) The average wholesale value of prizes awarded in lieu of tickets or tokens for
single play of the device does not exceed the lesser of $5 or 7 times the cost
charged for a single play of the device.

(E) The redemption value of tickets, tokens, and other representations of value,
which may be accumulated by players to redeem prizes of greater value, does
not exceed the amount charged for a single play of the device.

Based on the language contained in the Act, the amusement device must involve a game, “the
object of which is throwing, rolling, bowling, shooting, placing, or propelling a ball or other object into,
upon, or against a hole or other target.” If the device does not involve a game with the required
object, it is not a redemption machine and cannot be licensed as one. Video games cannot meet this
requirement because there is no physical ball or object.

Assuming the object requirement is satisfied, all five of the enumerated conditions also must
be satisfied. For example, only merchandise may be awarded by the licensee of the machines. Gift
cards do not qualify as merchandise.

Under the Coin-Operated Amusement Device and Redemption Machine Tax Act, a coin-
operated amusement device is every coin-in-the-slot-operated amusement device, including a device
operated or operable by insertion of coins, tokens, chips or similar objects, in this State which returns
to the player thereof no money or property or right to receive money or property. In general, machines
that allow players to accumulate credits that may be redeemed for gift cards that the players can use
to receive property do not meet the definition of a coin-operated amusement device subject to tax
under the Coin-Operated Amusement Device and Redemption Machine Tax Acct.

| hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department's Taxpayer Information Division at (217) 782-3336.

Very truly yours,

Richard S. Wolters
Associate Counsel

RSW:msk