Is a vending operator's purchase of a video game machine a nontaxable purchase for resale because he later 'contributes' it to a partnership with the location owner?

Plain-English summary

Folz Amusement & Game Co., Inc. operates a video-game business. It buys a machine and places it at a location owner's premises; the location owner supplies the space, power, and security, while Folz keeps legal title, holds the only key, provides maintenance, and splits the receipts 50/50. Folz calls this arrangement a partnership and asked whether its purchase of the machine is a nontaxable purchase for resale because the machine is being "contributed to a partnership."

The Department held the purchase is taxable — it is a purchase for use, not for resale.

• Two separate transactions. Folz's inquiry involves (1) its purchase of the machine and (2) the placement of the machine at the third party's premises, which Folz treats as a contribution to a partnership.
• The definitions. Under Tax Law § 1101(b): a retail sale is a purchase for any purpose other than resale as such; a retail sale does not include "the contribution of property to a partnership in consideration for a partnership interest"; and "use" is "the exercise of any right or power over tangible personal property by the purchaser."
• Folz bought it for use. Because Folz acquired the machine for its own use — exercising rights and powers over it (title, the key, maintenance, operating it for receipts) — the acquisition is not a purchase for resale. It is a taxable "purchase at retail" under § 1105.
• The later contribution doesn't matter. The subsequent contribution of the machine to a partnership for a partnership interest, if it takes place, does not change the taxability of Folz's original purchase.

What this means for you

Buying equipment to operate yourself is a taxable purchase — a resale certificate doesn't fit. If you buy a machine and run it for revenue (keeping title, servicing it, controlling access), you're the end user. That's a taxable purchase at retail, even if you share the proceeds with a location owner.

Labeling a placement deal a "partnership" doesn't create a resale. The resale exclusion is for property you buy to sell as such. The separate partnership-contribution exclusion covers the contribution transaction — but it can't retroactively turn your original taxable purchase into a tax-free one.

Watch the order of events. New York taxed the purchase because use came first. (Contrast TSB-A-85(27)S, where a partnership genuinely transferred trucks to a corporation as a documented contribution to capital with no separate prior use for resale.)

Common questions

Q: I bought a game machine and placed it in a store on a 50/50 split. Can I buy it tax-free for resale?
A: No. You bought it to operate yourself — a taxable purchase for use. A resale certificate doesn't apply.

Q: We're contributing the machine to a partnership. Isn't that nontaxable?
A: The contribution of property to a partnership for a partnership interest isn't itself a retail sale, but that doesn't change the tax on your earlier purchase of the machine, which you bought for use.

Q: Does keeping title and the key matter?
A: Yes. Those show you exercised rights and powers over the machine — that's "use," which makes your purchase taxable.

Citations and references

Statutes:

• Tax Law § 1105 — imposition of sales tax
• Tax Law § 1101(b)(4)(i)(A) — retail sale; purchase for resale as such
• Tax Law § 1101(b)(4)(iii) — retail sale excludes the contribution of property to a partnership in consideration for a partnership interest
• Tax Law § 1101(b) — "use" is the exercise of any right or power over tangible personal property

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a85_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-85(4)S
Sales Tax
May 3, 1985

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S831220A

On December 20, 1983 a Petition for Advisory Opinion was received from Folz Amusement
& Game Co., Inc., 3401 Lawson Boulevard, Oceanside, New York 11572.
The issue raised is whether the purchase of a video game machine, which is to be contributed
to a partnership, is a purchase for resale and therefore not subject to the Sales Tax.
As the operator of a video game business Petitioner enters into an arrangement with a
location owner for placement of a machine on premises furnished by the location owner who also
supplies electric power and security for the machine. Petitioner retains legal title and provides
maintenance. He keeps the only key and shares the receipts from the machine equally (50/50) with
the location owner. Petitioner contends the arrangement is a partnership.
Petitioner's inquiry refers to two separate transactions:
(1)
(2)

The purchase of the video game machine by Petitioner,
and
The placement of the machine on the third party's business premises,
which vendor considers a contribution to a partnership.

The following definitions of Section 1101(b) of the Tax Law apply:
(1)

Purchase at retail. A purchase by any person for any purpose
other than....

(4)(i)(A)

For resale as such. . .

(4)(iii)

The term retail sale does not include:
The contribution of property to a partnership in
consideration for a partnership interest therein.

(4)(iii)(E)

Use. The exercise of any right or power over
tangible personal property by the purchaser. . .

Accordingly, the acquisition of the property by the Petitioner is not a purchase for resale
inasmuch as the property was purchased for use by the petitioner. Thus, the purchase of the property
is a "purchase at retail" and is a transaction subject to sales tax under section 1105 of the Tax Law.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-85(4)S
Sales Tax
May 3, 1985
The subsequent contribution by Petitioner of the property to a partnership in consideration
for a partnership interest therein (if any such contribution takes place) will not change the taxability
of the acquisition of the property by Petitioner as described above.

DATED: April 12, 1985

FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.