Are the fees an amusement-park game operator charges to play carnival-style games for a chance at a prize subject to New York sales tax as an admission charge, and are the prizes themselves taxable?

Plain-English summary

Trahanas Amusements, Inc. operates rides and games at a Westchester County-run amusement park in Rye, New York, where admission to the park itself is free. Customers pay a fee to Trahanas for the chance to play a game and possibly win a prize. Trahanas had been including sales tax in the amount it charged customers to play these games, and asked the Department to confirm whether that was correct — and separately, whether the prizes it hands out are taxable.

New York taxes admission charges to a "place of amusement" over ten cents. But a New York appellate decision on point — involving games essentially identical to Trahanas's — held that where there's no separate charge just to enter the tent or area where games are set up, the fee paid to play a game of chance isn't really an "admission charge"; it's payment for the chance to win a prize, not for entry to or use of an amusement place. Applying that precedent, the Department concluded Trahanas's game fees are not admission charges and are not subject to sales tax.

That answered the first question, but flipped the second one against Trahanas: because Trahanas gives away prizes to winning customers at no additional charge, those prizes are tangible personal property "purchased and given away without charge" — a category the regulations treat as a taxable retail purchase by the giver (Trahanas), not a sale to the recipient. Since Trahanas doesn't ordinarily sell these items in its business, its own purchases of the prizes are fully taxable retail purchases.

Finally, the ruling addresses the fact that Trahanas had already been collecting tax (in error) on its game charges. Even though that tax was never actually owed, New York law requires any vendor who's collected money "purportedly as tax" to remit it to the Department regardless — a business can't simply pocket tax it mistakenly charged customers. The customers' remedy is to seek a refund directly, which they can do within three years of the date the (never-actually-owed) tax was payable, if they can document having paid it.

What this means for you

Amusement park and carnival game operators

Charging admission to enter a game area is taxable; charging a fee to attempt a game of chance (with no separate entry fee) generally is not — but you'll owe use/sales tax yourself on prizes you buy specifically to give away for free, since that's treated as your own taxable retail purchase.

Businesses that mistakenly collected tax on a nontaxable charge

If you've been over-collecting tax by mistake, you can't just stop collecting it going forward and move on — anything already collected "purportedly as tax" must still be remitted to the Department. Customers, not the business, are the ones entitled to seek a refund of tax they shouldn't have been charged.

Accountants and tax professionals

Note the split treatment here: the charge to the customer and the operator's own purchase are analyzed completely separately under different provisions — non-taxability of the game fee doesn't carry over to exempt the operator's prize purchases.

Common questions

Q: Is a fee to play a carnival game the same as an admission charge to an amusement park?
A: Not if there's no separate charge just to enter the area where the games are played — courts have distinguished paying for a chance to win a prize from paying admission to use amusement facilities.

Q: If an amusement operator gives away prizes for free, does it owe tax on buying those prizes?
A: Yes — items purchased to be given away as promotional giveaways (rather than resold) are treated as a taxable retail purchase by the business doing the giving away, not a sale to the person who receives the prize.

Q: What happens to sales tax a business mistakenly collected on a nontaxable charge?
A: The business must still remit it to the Department — erroneously collected "tax" can't simply be kept. The customer who paid it can apply for a refund within three years if they can substantiate the payment.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(1) (purchase at retail); § 1101(b)(4) (retail sale)
• Tax Law § 1101(d)(2) (admission charge); § 1101(d)(10) (place of amusement)
• Tax Law § 1105(a) (retail sales tax); § 1105(f)(1) (admission charge tax)
• Tax Law § 1137(a) (remittance of erroneously collected amounts); § 1139(a) (refund procedure)
• 20 NYCRR § 526.6(c)(4) (promotional giveaways as retail purchases)

Cases and prior rulings referenced:

• Outdoor Amusement Business Assn. v. State Tax Commn., 84 AD2d 950, revd on dissenting mem below 57 NY2d 790 (1982)
• Balsam Amusements, TSB-H-83(209)S
• Outdoor Amusement Business Assoc. v. Tax Comm, TSB-H-83(78)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2003.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a03_9s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-03(9)S
Sales Tax
March 4, 2003

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S020717A

On July 17, 2002, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Trahanas Amusements, Inc., 4 Manhattan Avenue, Rye, NY 10580.
The issues raised by Petitioner, Trahanas Amusements, Inc., are:
1.

Whether charges collected at an amusement park for participating in games with a
chance to win a prize are subject to sales tax.

2.

Whether the prizes awarded are subject to sales and use tax.

Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner operates rides and games at an amusement park located in Rye, New York. The
amusement park is run by Westchester County, and admission to the park is free. Petitioner charges
a certain dollar amount for a person to participate in a game with a chance to win a prize. Petitioner
has been including sales tax in the amount charged to participate in games.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section
eleven hundred ten, the following terms shall mean:
(1) Purchase at retail. A purchase by any person for any purpose other than
those set forth in clauses (A) and (B) of subparagraph (i) of paragraph (4) of this
subdivision.
*

*

*

(4) Retail sale. (i) A sale of tangible personal property to any person for any
purpose, other than (A) for resale as such or as a physical component part of tangible
personal property, or (B) for use by that person in performing the services subject to
tax under paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven
hundred five where the property so sold becomes a physical component part of the
property upon which the services are performed or where the property so sold is later

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Sales Tax
March 4, 2003
actually transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax. . . .
Section 1101(d)(2) of the Tax Law defines admission charge as “[t]he amount paid for
admission, including any service charge and any charge for entertainment or amusement or for the
use of facilities therefor.”
Section 1101(d)(10) of the Tax Law defines place of amusement as “[a]ny place where any
facilities for entertainment, amusement, or sports are provided.”
Section 1105 of the Tax Law provides, in part:
Imposition of sales tax. On and after June first, nineteen hundred
seventy-one, there is hereby imposed and there shall be paid a tax of four percent
upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
*

*

*

(f)(1) Any admission charge where such admission charge is in excess of ten
cents to or for the use of any place of amusement in the state . . . except charges to
a patron for admission to, or use of, facilities for sporting activities in which such
patron is to be a participant, such as bowling alleys and swimming pools. . . .
Section 1137(a) of the Tax Law provides, in part:
Every person required to file a return under the preceding section whose total
taxable receipts, amusement charges and rents are subject to the tax imposed
pursuant to subdivisions (a), (c), (d), (e) and (f) of section eleven hundred five of this
article shall, at the time of filing such return, pay to the tax commission the total of
the following:
*

*

*

(iii) All moneys collected by such person, purportedly as tax imposed by this
article or pursuant to article twenty-nine, with respect to any receipt, amusement
charge or rent not subject to tax, and all moneys collected with respect to any receipt,
amusement charge or rent subject to tax, purportedly in accordance with a schedule
prescribed by the tax commission but actually in excess of the amount stated in such
schedule as the amount to be collected.

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Sales Tax
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Section 1139(a) of the Tax Law provides, in part:
In the manner provided in this section the tax commission shall refund or
credit any tax, penalty or interest erroneously, illegally or unconstitutionally
collected or paid if application therefor shall be filed with the tax commission (i) in
the case of tax paid by the applicant to a person required to collect tax, within three
years after the date when the tax was payable by such person to the tax commission
as provided in section eleven hundred thirty-seven, or (ii) in the case of a tax, penalty
or interest paid by the applicant to the tax commission, within three years after the
date when such amount was payable under this article . . . Such application shall be
in such form as the tax commission shall prescribe. No refund or credit shall be made
to any person of tax which he collected from a customer until he shall first establish
to the satisfaction of the tax commission, under such regulations as it may prescribe,
that he has repaid such tax to the customer. . . . (Emphasis added)
Section 526.6(c)(4) of the Sales and Use Tax Regulations provides, in part:
(i) Tangible personal property which is purchased and given away without
charge, for promotion or advertising purposes is not purchased for resale. It is a
retail sale to the purchaser thereof, and is not a sale to the recipient of the property.
(ii) Tangible personal property which is purchased for promotional or
advertising purposes and sold for a minimal charge which does not reflect its true
cost, or which is not ordinarily sold by that person in the operation of his business,
is a retail sale to the purchaser thereof, and not a sale to the recipient of the property.
Opinion
Petitioner operates rides and games at an amusement park located in Rye, New York.
Petitioner charges a certain dollar amount for a person to participate in a game with a chance to win
a prize. Pursuant to Section 1105(f)(1) of the Tax Law, receipts from the admission charged to or
for the use of any place of amusement in the state are subject to sales tax, with the exception of
charges to a patron for the use of facilities for sporting activities in which such patron is to be a
participant. The court in Outdoor Amusement Business Assn. v. State Tax Commn., 84 AD2d 950,
revd on dissenting mem below 57 NY2d 790(1982), examined whether games, similar to those of
Petitioner, would be deemed to be a place of amusement within the meaning of the statute. As
determined in Outdoor Amusement Business Assn. v. State Tax Commn., supra, the fee was paid
by the customer to participate in games in the hope of winning a prize and, since no charge was
made for entering the tents or places where the games were played, the fee was not paid as
admission to or for the use of a place of amusement. Therefore, the amounts charged by Petitioner
for the games are not for admission to or for the use of a place of amusement and are not subject to
sales tax.

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Petitioner awards prizes to its customers for no additional charge. Therefore, as provided
for in Section 526.6(c)(4) of the Sales and Use Tax Regulations, the prizes are considered to be
tangible personal property which is purchased and given away without charge, and are not ordinarily
sold in the operation of Petitioner’s business. Purchases of the prizes by Petitioner constitute
purchases at retail within the meaning and intent of Section 1101(b)(4) of the Tax Law, and are,
therefore, taxable under Section 1105(a) of the Tax Law. See Balsam Amusements, Dec St Tx
Comm, December 7, 1983, TSB-H-83(209)S; Outdoor Amusement v. Business Assoc. Tax Comm,
(Sup Ct Erie County, Johnson, J) 100 Misc.2d 961(1979), Outdoor Amusement Business Assoc. v.
Tax Comm (Sup Ct Erie County, Stiller, J., Sept 19,1980) TSB-H-83(78)S.
Though Petitioner has been including sales tax in the amount charged to participate in games,
these charges are not for admission to or for the use of a place of amusement and are not subject to
sales tax. However, Section 1137 of the Tax Law requires that a registered vendor pay to the
Department of Taxation and Finance all moneys collected by such person, purportedly as tax
imposed by Article 28 of the Tax Law, with respect to any receipts, amusement charges, etc. not
subject to tax. Accordingly, any moneys collected by Petitioner, purportedly as sales tax, are
required to be remitted to the Department of Taxation and Finance at the time of filing Petitioner’s
sales and use tax returns. However, a customer who has paid sales tax which was collected by
Petitioner in error may file a claim for refund within three years after the date when the tax was
payable by Petitioner to the Department of Taxation and Finance if he or she can substantiate the
payment of the tax. See Section 1139(a) of the Tax Law.

DATED: March 4, 2003

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.