How did Illinois sales tax apply to a bowling and arcade venue's games, rentals, memberships, food, merchandise, and party packages?

Plain-English summary

IDOR gave an amusement venue category-by-category guidance:

• merchandise, meals, beverages, beer, and wine were taxable retail sales;
• bowling, karaoke, ping-pong, and similar play were not subject to Retailers' Occupation or Use Tax when no tangible property transferred;
• locker and shoe rental receipts were not taxed, but the lessor owed Use Tax on its cost of the rented property;
• membership fees were generally nontaxable intangibles unless the membership transferred property or a service with property;
• a single party-package price combining entertainment with food or drink was fully taxable when the food and drink were not separately stated; and
• coin-operated amusement and redemption machines were governed by a separate annual privilege tax.

IDOR could not determine every party-package result without invoices. The letter also distinguished taxable prize or merchandise transfers from pure amusement services.

What this means for you

Separate tangible goods and food from admission, play, rentals, and membership charges. Bundling taxable food into one unstated party price can make the whole charge taxable.

Common questions

Was bowling itself subject to sales tax? Not when no tangible property was transferred.

Were shoe and locker rental receipts taxed? No, but the lessor owed Use Tax on the rented items.

What if food is included in one party price? Without a separate food and drink line, the entire charge was taxable under the cited rule.

Citations and references

• 86 Ill. Adm. Code 130.101, 130.2145(c)(2)(B), 130.401(d), 150.310(a)(3), 460.101, and 460.105.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2016.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2016/st-16-0066-gil.pdf

Original ruling text

ST 16-0066-GIL 12/19/2016 SALE AT RETAIL
If no tangible personal property is transferred to the customer, then no Illinois Retailers’
Occupation Tax or Service Occupation Tax would apply. See 86 Ill. Adm. Code Parts
130 and 140. (This is a GIL.)

December 19, 2016

Dear Xxxxx:
This letter is in response to your letter dated May 31, 2016, in which you requested
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 not a 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:
I am NAME, TITLE of COMPANY and I am authorized to request a Tax Ruling on
behalf of the Company.
Taxpayer’s identifying information is set out as follows:
COMPANY
ADDRESS
CITY , STATE #####
STATE 1 Taxpayer No. ####
Federal ID. No: #####
Formed in STATE
Statement of Relevant Facts
COMPANY. operates a complex amusement stores with Bowling, Arcade game,
Karaoke, Billiards, Darts & Ping Pong. In addition, we sell food and beverage to
our customers while they play these various amusement games. We also offer
party packages such as birthdays, corporate events and holiday celebrations.
We have an existing store in CITY 1.
Statements Relating to Request

ST 16-0066-GIL
MONTH 1, 20XX to MONTH 31, 20XX
This issue is not under consideration by the Illinois Department of Revenue in
connection with an audit examination of any type, a refund request, a voluntary
disclosure agreement, administrative hearing, or litigation for COMPANY.
We also made a similar request from taxing jurisdiction of other states where our
business is located.
Questions:
We want to confirm if the sales tax and if there are any other taxes applicable on
the following business activities,
1) Bowling Pro-Shop-We sell some souvenir items such as bags,
bowling balls, socks and other bowling items to our customers.
2) Membership Card- We offer membership cards to our
customers with an annual fee. With these cards they can avail
of discounts on our amusement services and arcade games.
3) Bowling
-We offer games by playtime (ie. 90 to 120 minutes for peak
days, unlimited play time slow days)
-We offer games by game played. (ie. 1 game, 2 games)
-We offer bowling parties/packages with food and drink
4) Bowling Locker Rental-Rate is per day or per year
5) Shoe Rental-a fee to borrow bowling shoes
6) Billiards, Darts, Karaoke, Pingpong-rate is per hour to play
these amusement games
7) Sales of meals and beverages
8) Sale of beer, draft & Wine—In addition to sales tax are we
required to pay liquor tax?
9) Arcade games-These are considered coin-operated amusement
devices where a customer will use a card instead of coin and
they can play the various arcade games. We offer time play
and unlimited play and other special game card.
We also have redemption machines where the customers could redeem some
toys, prizes using the tickets they got from playing these machines, and crane
machines that the customer could use to grab a toy prize. Since the cost of the
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ST 16-0066-GIL
prizes are material part of the amusement service, could we use the Certificate of
Resale for the purchase of these redemption prizes without the sales tax?
For more information, you can also visit our website.

DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization”
provides that “[w]hether to issue a private letter ruling in response to a letter ruling request is
within the discretion of the Department. The Department will respond to all requests for private
letter rulings either by issuance of a ruling or by a letter explaining that the request for ruling
will not be honored.” 2 Ill. Adm. Code 1200.110(a)(4). Further, the Department’s regulations
regarding Private Letter Rulings provide that “[i]f there is case law or there are regulations
dispositive of the subject of the request, the Department will decline to issue a letter ruling on
the subject." 86 Ill. Adm. Code 1200.110(a)(3)(D). The Department recently met and
determined that it would decline to issue a Private Letter Ruling in response to your request.
We hope, however, the following General Information Letter will be helpful in addressing your
questions.
The Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property at retail to purchasers for use or
consumption. See 86 Ill. Adm. Code 130.101. Use Tax is imposed on the privilege of using, in
this State, any kind of tangible personal property that is purchased anywhere at retail from a
retailer. See 86 Ill. Adm. Code 150.101. These taxes comprise what is commonly known as
“sales tax” in Illinois.
Meals, Beverages, Beer, and Wine
If you are engaged in the sale of meals, beverages, beer, or wine, you are engaged in
the sale of tangible personal property and must collect Retailers’ Occupation Tax and any
applicable local taxes on such sales. The State of Illinois does not require you to collect and
remit liquor tax on such sales as liquor tax is generally collected by the distributor. See the
Liquor Control Act, 235 ILCS 5/8-2.
Bowling, Billiards, Darts, Karaoke, Ping-Pong
Illinois Retailers' Occupation Tax and Use Tax are imposed only upon tangible personal
property. When tangible personal property such as bags, socks, and bowling balls, is sold to
customers, such items are subject to Retailers’ Occupation Tax. In contrast, as long as no
tangible personal property is transferred, sales of activities such as bowling, karaoke, and ping
pong would not be subject to Retailers' Occupation Tax or Use Tax.
Locker Rental
Illinois does not tax rental receipts. Therefore, the rental of a locker for purposes of
bowling is not subject to tax. Similarly, shoe rentals are not subject to tax in Illinois. Lessors
are considered end users of the tangible personal property they purchase for rental purposes.
As end users of tangible personal property located in Illinois, lessors under a true lease owe
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ST 16-0066-GIL
Use Tax on their cost price of such property. The lessors would either pay their suppliers, if
their suppliers were registered to collect Use Tax, or would self-assess and remit the tax to the
Department. If the lessors already paid taxes in another state with respect to the acquisition of
the tangible personal property, they would be allowed a credit against Use Tax to the extent of
the amount of the tax properly due and paid in the other state. See 86 Ill. Adm. Code
150.310(a)(3).
Parties
Based on the descriptions in your letter, it appears that you offer bowling party
packages which include food or drink. When a single charge is made for both entertainment
and food, and the charge for food and drink is not separately stated on the customer’s bill, the
entire charge is subject to Retailers’ Occupation Tax. We cannot determine the taxability of
your bowling parties without examining the invoices. However, if the charges do not include a
separate line for the tangible personal property, i.e., food and drink, the entire charge for the
party would be subject to tax. See 86 Ill. Adm. Code 130.2145(c)(2)(B).
Membership Cards
Generally, the Department does not consider receipts from the sale of membership fees
to be gross receipts from the sale of tangible personal property. Rather, a membership fee is
considered an intangible, which is not subject to Retailers' Occupation Tax or Use Tax liability.
86 Ill. Adm. Code 130.401(d). This is the case when the sale of membership rights does not
include the transfer of tangible personal property. However, if the membership charge entitles
the customer to receive an item of tangible personal property or to receive a service and
tangible personal property is transferred incident to that service, then that charge may result in
either Retailers’ Occupation Tax liability, Service Occupation Tax liability or Use Tax liability.
Arcade Games and Redemption machines
The Coin-Operated Amusement Device and Redemption Machine Tax Act imposes an
annual privilege tax on the privilege of operating, in this State: 1) every coin-in-the-slotoperated amusement device that returns to the player no money or property or right to receive
money or property; and 2) every redemption machine, as defined in 86 Ill. Adm. Code 460.105.
See 86 Ill. Adm. Code 460.101.
For an amusement device to be taxable, it must be operated by coin, token, chip, or
similar objects, and it must be an amusement device. The device cannot return money or
property or the right to receive money or property to the player. An amusement device is a
device which is played primarily for amusement or entertainment rather than for the purchase
of some specific commodity or service. Every kind of coin-operated amusement device, which
does not return money or property or the right to receive money or property to the player, is
subject to the tax. 86 Ill. Adm. Code 460.105(a).
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 that is either physical or computer generated on a display or with lights into, upon,
or against a hole or other target that is either physical or computer generated on a display or
with lights, or stopping, by physical, mechanical, or electronic means, a moving object that is
either physical or computer generated on a display or with lights into, upon, or against a hole
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ST 16-0066-GIL
or other target that is either physical or computer generated on a display or with lights,
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 wholesale value of prizes awarded in lieu of tickets or tokens for single play of
the device does not exceed $25, and
E) The redemption value of tickets, tokens, and other representations of value, which
may be accumulated by players to redeem prizes of greater value, for a single play
of the device does not exceed $25. 720 ILCS 5/28-2(a)(4).
The operator of those games incurs Use Tax on the purchase price of the tangible
personal property that the operator provides as prizes for the games. Such an operator may
not provide a Certificate of Resale when purchasing the tangible personal property that is to be
provided as prizes. If the operator has not paid the Use Tax to his Illinois suppliers, the
operator must register and remit the tax to the Department of Revenue. See 86 Ill. Adm. Code
130.1975.
I 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,

Cara Bishop
Senior Counsel
CB:bkl

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