Are a restaurant's monthly charges for table-ordering tablets taxable, and is its separate $1 customer charge for playing offline tablet games taxable?

Plain-English summary

The South Carolina Department of Revenue split the restaurant-tablet arrangement into two different transactions.

First, the out-of-state vendor's charges to the restaurant company were taxable. The vendor owned the tablets, placed one at each restaurant table, and charged a monthly service fee for their use. The restaurant used the devices for ordering food and drinks, processing payments, and customer surveys. Because South Carolina defines a sale or purchase to include a lease or rental, the restaurant was the consumer renting tangible personal property. The taxable rental proceeds included both the required monthly fee and the vendor's contractual share of excess game revenue.

Second, the restaurant's separate $1 charge to diners for unlimited games was not taxable under the facts presented. The game software resided on the tablet and operated without an Internet connection. The charge did not transfer, lease, or rent tangible personal property to the diner and was not a charge for a communication service.

If the out-of-state vendor had South Carolina nexus, it was responsible for remitting the tax on its tablet charges. If it lacked nexus, the restaurant owed use tax. A receipt showing that the vendor paid South Carolina tax relieved the restaurant under Section 12-36-1330. Applicable Department-administered local tax also applied to the tablet rental.

What this means for you

Restaurants using vendor-owned tablets

A label such as "monthly service fee" did not change the substance of the transaction. The restaurant paid for possession and use of vendor-owned hardware, so the Department treated the full vendor consideration—including the vendor's game-revenue share—as taxable rental proceeds.

Restaurants charging diners for games

The customer charge was nontaxable because the described offline game play was not a property rental or communication service. That conclusion depends on the exact facts: the software stayed on the restaurant's tablet, no other content was offered, and playing did not require an Internet connection.

Accountants and tax professionals

Analyze the vendor-to-restaurant and restaurant-to-customer transactions separately. Also determine whether the vendor collects South Carolina tax; if not, the restaurant may need to accrue use tax on the rental charge.

Common questions

Q: Was the monthly tablet service fee taxable?
A: Yes. It was consideration for the restaurant's rental and use of tangible personal property.

Q: Was the vendor's percentage of game fees taxable too?
A: Yes. The ruling included that contractual revenue share in the vendor's taxable charges for use of the tablets.

Q: Was the restaurant's $1 diner game charge taxable?
A: No. Under the stated facts it was neither a sale, lease, or rental of tangible property nor a communication service.

Q: Who remitted tax when the vendor was outside South Carolina?
A: The vendor did so if it had South Carolina nexus. Otherwise, the restaurant was liable for use tax unless it held a receipt showing South Carolina tax had been paid.

Q: Can another restaurant rely on this PLR?
A: No. It binds the Department only for the requesting taxpayer and the specific arrangement described.

Citations and references

• S.C. Code Ann. Sections 12-36-910(A) and 12-36-1310(A) (sales and use tax)
• S.C. Code Ann. Sections 12-36-90 and 12-36-130 (gross proceeds and sales price include the full value without expense deductions)
• S.C. Code Ann. Section 12-36-100 (sale and purchase include rentals and leases)
• S.C. Code Ann. Sections 12-36-110 and 12-36-120 (retail and wholesale sales)
• S.C. Code Ann. Section 12-36-1330 (receipt showing South Carolina tax paid)

Subject

Table Top Ordering and Bill Payment Tablets Used by a Restaurant - Monthly Service and Game Fees

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR18-2.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 12265, Columbia, South Carolina 29211

SC PRIVATE LETTER RULING #18-2

SUBJECT:

Table Top Ordering and Bill Payment Tablets Used by a Restaurant - Monthly
Service and Game Fees
(Sales and Use Tax)

REFERENCES: S.C. Code Ann. Section 12-36-910 (2014)
S.C. Code Ann. Section 12-36-1310 (2014)
S.C. Code Ann. Section 12-36-60 (2014)
AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2014)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE:

A Private Letter Ruling is an advisory opinion issued to a specific taxpayer by
the Department to apply principles of law to a specific set of facts or a
particular tax situation. It is the Department’s opinion limited to the specific
facts set forth, and is binding on agency personnel only with respect to the
person to whom it was issued and only until superseded or modified by a
change in statute, regulation, court decision, or another Departmental advisory
opinion, providing the representations made in the request reflect an accurate
statement of the material facts and the transaction was carried out as proposed.

Questions:

1. Are charges by a vendor (“Vendor”) to Taxpayer Corporation (“Taxpayer”) for use in its
   restaurants of the Vendor’s table top ordering and bill payment tablets, as described in the
   facts, subject to the sales and use tax?
2. Are charges by Taxpayer’s restaurants to customers to play games on the table top ordering
   and bill payment tablets, as described in the facts, subject to the sales tax?
   Conclusions:
3. The charges by the Vendor to Taxpayer for use in its restaurants of the Vendor’s table top
   ordering and bill payment tablets, including the monthly service fees and the portion of the
   game fees paid to the Vendor as described in the facts, are subject to the sales and use tax.

1

Note: If the out-of-state Vendor has nexus with South Carolina, it is responsible for remitting
the tax to the Department. If not, Taxpayer is liable for remitting the use tax to the
Department. Under Code Section 12-36-1330, if Taxpayer has a receipt from the Vendor
indicating the South Carolina tax has been paid, Taxpayer is relieved of the liability for the
tax.

2. The charges by Taxpayer’s restaurants to customers to play games on the table top ordering
   and bill payment tablets, as described in the facts, are not subject to the sales tax.
   Facts:
   Taxpayer is a full service casual dining company. The Taxpayer has begun using table top
   ordering and bill payment tablets (“tablets”) in its restaurants. These tablets are used to facilitate
   order placement, order add-ons, checkout/payment, and customer satisfaction surveys. The use
   of the tablet allows for increased food and beverage sales, quicker table turnovers, and increased
   guest loyalty and satisfaction.
   The tablet has a touch screen interface, and one is placed at each table. The tablet provides
   pictures and detailed descriptions of menu items; allows customers to place drink, appetizer, and
   entree orders; allows customers the option of paying their guest check by credit card, debit card,
   or gift card through the tablet; 1 and allows customers to complete customer satisfaction surveys.
   An unrelated out-of-state company (“Vendor”) supplies the tablets to the Taxpayer’s restaurants
   for a monthly service fee (referenced below). The Vendor ships the tablets to the Taxpayer’s
   restaurants located in South Carolina. The Vendor retains title to the tablets.
   In addition to facilitating order placement and payment, the tablet allows customers to play
   games 2 for a fee. Customers are charged a $1.00 fee to play unlimited games. The game
   application software resides within each tablet and operates independent of an internet
   connection when customers play the games. The $1.00 game fee is included as a line item on the
   customer’s food and beverage bill. No other content is available to customers on the tablet.
   On average, over 80% of the customers use the tablet for ordering and/or payment at the end of the
   meal, while 12-20% purchase unlimited games. Per the agreement between the Vendor and the
   Taxpayer, the Taxpayer is responsible for collecting the game fees.

The Vendor charges the Taxpayer monthly service fees for the use of its tablets. Per their
agreement, the Taxpayer keeps 100% of the game fees it collects each month, up to the amount
of the monthly service fees. Any additional game fees collected each month must be split
between the Taxpayer and the Vendor 80%/20%, respectively, in accordance with their
agreement. The Taxpayer must pay the monthly service fees to the Vendor each month,
regardless of any game fees collected.
1

Customers also have the option of paying by these methods through their server/wait staff or through their own
device utilizing their own cellular/data service.
2
The tablet games do not contain free play features, are not used for gambling, and do not contain poker, blackjack,
keno, lotto, bingo, craps, or any other game of chance of whatever name or kind. For more information see Code
Sections 12-21-2710 and 12-21-2712.

2

Discussion:
Code Section 12-36-910(A) imposes “a sales tax, equal to [six] percent of gross proceeds of
sales, upon every person engaged ... within this State in the business of selling tangible personal
property at retail.”
Code Section 12-36-90 defines the term “gross proceeds of sales” and reads, in part:
Gross proceeds of sales, or any similar term, means the value proceeding or
accruing from the sale, lease, or rental of tangible personal property.
(1) The term includes:

(b) the proceeds from the sale of tangible personal property without any deduction
for:
(i) the cost of goods sold;
(ii) the cost of materials, labor, or service;
(iii) interest paid;
(iv) losses;
(v) transportation costs;
(vi) manufacturers or importers excise taxes imposed by the United States; or
(vii) any other expenses.
Code Section 12-36-1310(A) imposes the use tax at the rate of six percent of the sales price of
the property “on the storage, use, or other consumption in this State of tangible personal property
purchased at retail for storage, use, or other consumption in this State.”
Code Section 12-36-130 defines the term “sales price” and reads in part:
“Sales price” means the total amount for which tangible personal property is sold,
without any deduction for the cost of the property sold, the cost of the materials
used, labor or service cost, interest paid, losses, or any other expenses.
In addition, Code Section 12-36-100 defines the terms “sale” and “purchase” to include a rental,
lease, or other form of agreement.
Based on the above, sales at retail of tangible personal property include the rental of tangible
personal property and are subject to the sales and use tax.
Code Section 12-36-110 defines “sale at retail” and “retail sale” and reads:
Sale at retail and retail sale mean all sales of tangible personal property except
those defined as wholesale sales.

3

Code Section 12-36-120 defines “wholesale sale” and “sale at wholesale” to include the sale of
“tangible personal property to licensed retail merchants…for resale, and do not include sales to
users or consumers not for resale.”
Based on the above, the monthly service fee is a rental fee paid by the Taxpayer to the Vendor
for use of the tablets. Since the Taxpayer is the user or consumer of the tablets, the rental of the
tablets is a retail sale. As such, the charges by the Vendor to the Taxpayer for use of the
Vendor’s table top ordering and bill payment tablet, including the monthly service fee and the
portion of the game fees paid to the Vendor as described in the facts, are subject to the sales and
use tax. 3
The last issue to be addressed concerns the charges by Taxpayer’s restaurants to customers to
play games on the tablets. The sales tax is imposed on the sale, lease, or rental of tangible
personal property and upon certain communication services. 4 The charge to play games on the
tablet is not a charge for the sale, lease, or rental of tangible personal property and is not a charge
for communication services.
Therefore, the charges by the Taxpayer’s restaurants to customers to play games on the tablets,
as described in the facts, are not subject to the sales tax.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director
October 19
, 2018
Columbia, South Carolina

CAVEAT: This advisory opinion is issued to the taxpayer requesting it on the
assumption that the taxpayer’s facts and circumstances, as stated, are correct. If
the facts and circumstances given are not correct, or if they change, then the
taxpayer requesting the advisory opinion may not rely on it. If the taxpayer relies on
this advisory opinion, and the Department discovers, upon examination, that the
facts and circumstances are different in any material respect from the facts and
circumstances given in this advisory opinion, then the advisory opinion will not
afford the taxpayer any protection. It should be noted that subsequent to the
publication of this advisory opinion, changes in a statute, a regulation, or case law
could void the advisory opinion.

3

The rental of the tablets is subject to any applicable local sales and use taxes administered and collected by the
Department.
4
See Code Sections 12-36-910 and 12-36-100.

4