Do I owe Texas sales tax on sports cards sold through vending machines, including the chance cards redeemable for an autograph?

Subject

Sports Cards And Certificates — Sold Through Vending Machines And Reedemable For Autographs Of Sports Stars

Plain-English summary

A company planned to place sports card vending machines in stores and movie theaters across East Texas. For 25 cents, a customer would get three or four sports cards worth ten cents to several dollars, with a chance of also getting a certificate redeemable for an autograph of a sports star (worth up to fifty dollars). The company asked the Comptroller whether the receipts from these machines were taxable.

The Comptroller's answer: yes. The cards are tangible personal property, so the full 25-cent (or whatever price) receipt from each sale is subject to the 6.25% state sales tax plus any applicable local sales tax, based on where the machine is located. The Comptroller specifically rejected the idea that these were exempt "skill or pleasure" coin-operated amusement machines requiring only an amusement machine permit -- vending a physical card is a sale of goods, not amusement. The company could buy the sports cards themselves tax-free using a resale certificate (since the cards are resold to customers), but it had to pay sales tax when it had the autograph-redemption certificates printed, since those certificates were being consumed/used by the company rather than resold as a separate taxable item.

What this means for you

Vending machine operators

If you sell tangible items (cards, toys, novelties) through a vending machine -- even mixed with a chance at a bonus prize -- the receipts are taxable sales of tangible personal property. You cannot treat the machine as an exempt amusement/skill machine just because there's an element of chance in what the customer receives.

Purchasing and printing costs

You can use a resale certificate to buy inventory (like the cards) that you'll resell through the machine without paying tax on that purchase. But items you have printed for your own operational use, like redemption certificates, are taxable purchases -- you pay sales tax on the printing charge itself.

Common questions

Q: Is a vending machine that dispenses trading cards with a chance at a bonus item an exempt amusement machine?
A: No. Per this letter, it's a sale of tangible personal property (the cards), not a skill-or-pleasure amusement machine, so it doesn't qualify for the amusement-machine treatment or require only an amusement machine permit.

Q: Do I pay sales tax on the cards I buy to stock the vending machine?
A: No, per this letter you may give a resale certificate when purchasing the cards, since you're reselling them to customers through the machine.

Q: Do I pay sales tax on printing the autograph-redemption certificates?
A: Yes, per this letter you should pay sales tax on the cost of printing those certificates.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9604L1409B05

Original ruling text

April 17, 1996

Dear **:

Thank you for your letter concerning the taxability of sport cards vended
from a vending machine. Your letter to Liz Grieder was forwarded to me for
a response.

COMPANY A is going to place their sports card vending machines in stores and
movie theaters throughout East Texas. The vending machines will be filled with
sports cards that range in value from ten cents to several dollars. For 25
cents, the purchaser gets three to four cards with the possibility of getting
a certificate redeemable for an autograph of a sports star. The autograph is
worth up to fifty dollars.

The receipts from the sports card vending machines are subject to sales tax as
the sale of tangible personal property. The sports card vending machines are
not skill or pleasure coin-operated machines in which amusement machine permits
are required for each machine. You will need to remit the 6.25% state sales
and any applicable local sales tax on the receipts based on the taxing
jurisdictions where the vending machines are located. You may give a resale
certificate when purchasing the sports cards vended from the machines. However,
you should pay sales tax on the printing of the certificates redeemable for
autographs.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Policy, Comptroller of Public Accounts.

Sincerely,

David Somerville
Tax Policy Division

NOTE: Previous Accession Number 9604193L