Is a restaurant's tabletop tablet ordering/payment system taxable when the restaurant buys or rents it from a vendor, and are the fees the restaurant charges diners for games, news, and song requests on the tablet taxable?
Apply this to your situation
This page answers the general question as of 2016. Ezel answers yours, under current Utah tax law, with citations.
Plain-English summary
A casual-dining restaurant company piloted tabletop Android tablets that let diners order food, pay their check, and (for a separate fee) access "premium content" — games, news/social media, and song requests played over the restaurant's sound system. A vendor supplies and operates the tablet system under a Service Agreement, charging the restaurant either a flat monthly fee, a revenue-share commission on the diners' premium-content spending, or both. The restaurant asked the Utah State Tax Commission to sort out the tax treatment of both halves of this arrangement.
Half one — what the restaurant pays the vendor. The restaurant argued this was a nontaxable service (the agreement is literally titled "Service Agreement"). The Commission disagreed, applying the "essence of the transaction" test from B.J.-Titan Services v. State Tax Comm'n (Utah 1992): looking past the contract's label, what the restaurant is really buying is the use of the vendor's prewritten computer software that powers the POS/ordering/game/content system — and prewritten software is expressly defined as taxable tangible personal property under § 59-12-102(124)(b)(v). That holds whether the vendor bills it as a flat "monthly service fee," a revenue-share "commission," or some combination, and it doesn't matter whether the restaurant or the vendor owns the physical tablet hardware — even a software-only arrangement (restaurant owns hardware, vendor licenses software) is still a taxable sale of software use. If the vendor doesn't collect Utah sales tax on these charges, the restaurant owes use tax instead, and the two companies can't shift the vendor's collection duty to the restaurant by contract.
Half two — what diners pay the restaurant for premium content. Here the answer flips. Utah exempts an "unassisted amusement device" — one the customer alone starts and stops, without staff assistance — from sales tax (§ 59-12-104(40)(a)). Because diners fully control starting/stopping games, browsing news/social content, and selecting songs on the tablet, with no restaurant employee involved, the Commission found the fees for that access exempt, even though a game arcade fee or jukebox fee would ordinarily be taxable "amusement" charges. The Commission contrasted this with an earlier appeal involving go-karts that staff waved on/off the track — that made the go-karts an "assisted" (taxable) amusement device, unlike these self-service tablets.
What this means for you
Restaurants adopting tabletop ordering/entertainment tablets
Expect to pay sales/use tax on what you pay your technology vendor for the system — that's taxed as software, not as a nontaxable IT service, regardless of how the contract is titled or who owns the hardware. But if you charge diners for on-tablet games, news, or music requests that diners operate entirely themselves with no staff interaction, those charges can be sold tax-free as an unassisted amusement device.
POS and restaurant-tech vendors
Calling your product a "Service Agreement" doesn't make your fees a nontaxable service in Utah — if the substance of what you're providing is the use of your software, expect the state to tax it as tangible personal property regardless of contract labels. Structure billing and collection responsibilities with that in mind, since you (not just your restaurant customer) may have the primary Utah collection duty.
Tax professionals structuring similar bundled-technology deals
This ruling is a clean two-part precedent: (1) a software-based, essence-of-transaction analysis for vendor-to-business charges (reuse the B.J.-Titan framework for any "service agreement" that's really software use), and (2) the "who starts/stops it" test for whether a self-service entertainment feature is an exempt unassisted amusement device versus taxable staff-assisted amusement. The key fact line distinguishing "assisted" from "unassisted" is literal physical control — compare this ruling's self-service tablets to the Commission's earlier go-kart appeal where staff waved karts on and off the track.
Common questions
Q: Is a restaurant's payment to a tablet/POS vendor taxable in Utah?
A: Yes — Utah treats it as a taxable sale of the vendor's prewritten computer software (tangible personal property), not a nontaxable service, regardless of whether it's billed as a flat fee, a revenue-share commission, or a combination, and regardless of who owns the tablet hardware.
Q: Are fees restaurant customers pay to play games or request songs on a tabletop tablet taxable?
A: Not under this ruling — because the customer alone starts and stops each activity with no staff assistance, it qualifies as an exempt "unassisted amusement device" under § 59-12-104(40)(a).
Q: What makes an amusement device "assisted" instead of "unassisted"?
A: Whether an employee (not the customer) starts and stops the activity at the seller's direction. Self-service tablets controlled entirely by the customer are unassisted (exempt); something like staff-supervised go-karts is assisted (taxable).
Q: Does this ruling apply to my restaurant or my technology product?
A: Not automatically — it's a private letter ruling binding only on the Commission for the taxpayer and facts described, though other taxpayers may cite it for persuasive weight if closely similar. Consult a Utah tax professional about your own facts.
Citations and references
Statutes:
- Utah Code Ann. § 59-12-103(1)(a), (f), (k), (l) (sales tax on TPP, amusement fees, leases/rentals)
- Utah Code Ann. § 59-12-104(40)(a) (unassisted amusement device exemption)
- Utah Code Ann. § 59-12-102(14) (assisted amusement device definition)
- Utah Code Ann. § 59-12-102(134) (unassisted amusement device definition)
- Utah Code Ann. § 59-12-102(93)(a) (prewritten computer software definition)
- Utah Code Ann. § 59-12-102(124)(b)(v) (prewritten software = tangible personal property)
- Utah Code Ann. § 59-12-211(12) (software-use transactions sourced to purchaser's address)
- Utah Code Ann. § 59-12-107(2) (collection duty / use-tax backstop)
Case law:
- B.J.-Titan Services v. State Tax Comm'n, 842 P.2d 822, 825 (Utah 1992) (essence-of-the-transaction test)
Source
- Landing page: https://tax.utah.gov/commission/rulings/
- Original PDF: https://files.tax.utah.gov/tax/commission/ruling/15-007.pdf
Original ruling text
FINAL PRIVATE LETTER RULING
REQUEST LETTER
15-007
DELIVERED CERTIFIED MAIL
AND VIA EMAIL
[email protected]
August 20, 2015
Office of the Commission
Utah State Tax Commission
210 N 1950W
Salt Lake City, Utah 84134
Re: Request for Private Letter Ruling
Sales and Use Tax - Mobile Point of Sale Device
Commissioners:
Please allow this letter to serve as a request for a Private Letter Ruling (PLR) pursuant to Utah
Admin. Code § R861-1A-34, with respect to the appropriate taxability of THE COMPANY’s use
of a mobile point of sale device (described below) within its restaurants in Utah.
The firm of TAX FIRM is authorized to request the tax opinion on behalf of the Company. An
executed power of attorney and declaration of representative, Form TC-737, is attached hereto as
Exhibit A.
The Company’s identifying information, as required is set out below:
THE COMPANY
ADDRESS
CITY-1, STATE-1 #####
STATEMENT OF RELEVANT FACTS
THE COMPANY (“the Company”) is a large, full service casual dining company with restaurant
locations in Utah. The Company has initiated a pilot program incorporating the use of a mobile
point of sale device (herein “Mobile Point of Sale Device” or “Device”) at its restaurant
locations. The Device accommodates tabletop menu, ordering, and payment in some of its Utah
locations. The Device is an Android tablet with a touch screen interface that is located at each
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table. It provides pictures/detailed descriptions of the menu items and allows customers to place
drink, appetizer, and entree orders, and pay their check directly through the Device. The
customer has the option to pay their guest check by credit card, debit card, or gift card on the
Device. Alternatively, it can be paid through their server/wait staff if preferred.
The Mobile Point of Sale Device also allows restaurants the option to enhance the customer
experience by allowing access to premium content located on the Device. This content could
include news, sports, access to social media, selecting songs to be played on the restaurant’s
playlist as well as access to interactive games. The Company will charge separate fees for access
to games on the Device, access to current news and social media, and for song selections. The
game application software resides within each Device. During the pilot phase, the Company will
charge only for game fees, and the use of the Device to access news content will be free. 1 The
premium content fee will be included as a line item on the customer’s food and beverage bill.
The vendor (“Vendor”) of the Mobile Point of Sale Device has indicated to the Company that at
the average restaurant over 80% of the restaurant customers use the Device for ordering and/or
payment at the end of the meal, while only 12-20% of the customers access any premium content
located on the Device.
The owner of the Devices charges the Company a monthly service fee for the use of the Devices.
Per the agreement between the Vendor and the Company, the Company will be responsible for
the collection of the revenue generated by accessing the premium content and
collection/remittance of any applicable state or local taxes imposed on the transactions.
Additionally, the Vendor may also charge monthly commissions to the Company as a percentage
of the game fee and song fee income. The Company will be required to pay to the Vendor a
portion (or potentially all) of the revenue generated by these premium content fees.
In a possible alternative scenario, the Vendor will not charge the Company a monthly service fee
for use of the devices, but will instead receive from the Company all of the premium content fees
up to a maximum amount, at which time the fees in excess of such amount will be shared with
the Company.
The Mobile Point of Sale Device was developed specifically for the restaurant industry. The
primary purpose of the Device is to facilitate (1) order placement, (2) order add-ons, (3)
checkout/payment, and (4) customer satisfaction surveys. The benefits of the Device to the
restaurant industry include increased food and beverage sales, a quicker table turnover, and
increased guest loyalty and satisfaction. To achieve these desired results, the Company will
provide one Mobile Point of Sale Device at each individual table within each restaurant. The
average restaurant will typically contain 50 tables, and on average 50 Mobile Point of Sale
Devices would then be used at each establishment.
It is the Company’s intent that access to premium content (including news, videos, sports,
educational items, and interactive games) is ancillary to the true purpose of the Device as part of
1
This fee structure is intended to be employed solely for the pilot program. Following the conclusion of
the program, the Company may elect to charge a fee for access to any premium content on the Device.
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the Company’s established point of sale order and payment system. A picture of the Device and
its intended use (e.g., ordering food through a mobile menu) is included below.
PICTURE REMOVED
ISSUES
1) Based on the information provided, does the Utah State Tax Commission (“Commission”)
consider the Device to constitute an “unassisted amusement device,” the operational receipts
from which are exempt from sales tax as provided by Utah Code Ann. §59-12-104(40)?
2) Should the Commission not consider the Mobile Point of Sale Device to be an unassisted
amusement device, would the following fees charged for access to the premium content be
subject to sales tax:
a. Fee for unlimited access to games that are stored on the Device; if so, are such fees
properly categorized as amounts paid for the rental or use of tangible personal
property or fees or admissions for amusement or entertainment?
b. Fee for unlimited access to current news events and social media; if so, are such fees
properly categorized as amounts paid for the rental or use of tangible personal
property, fees or admissions for amusement or entertainment, or telecommunications
services?
c. Fees for songs that are selected to be played in the restaurant; if so, are such fees
properly categorized as amounts paid for the rental or use of tangible personal
property, fees or admissions for amusement or entertainment, or telecommunications
services?
3) If a single premium content fee is charged for unlimited access to games stored on the
Device and unlimited access to current news events and social media, how will Utah
view this single charge?
4) Are the monthly service fees paid by the Company to the Vendor, who retains title to the
devices, subject to tax as a rental or lease of personal property? If so, can the Company
self-accrue use tax on the amount deemed as rental or lease payments to the Vendor?
5) Are the fees described as commissions paid by the Company to the Vendor, who retains
title to the devices, subject to tax as a rental or lease of personal property? If so, can the
Company self-accrue use tax on the amount deemed as rental or lease payments to the
Vendor? Will the result change if the Device is owned by the Company rather than the
Vendor?
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6) If the Vendor does not charge the Company a monthly service fee for use of the Devices,
but instead receives from the Company all of the premium content fees up to a maximum
amount, at which time the fees in excess of such amount are shared with the Company,
would such fees provided by the Company to the Vendor as commissions be viewed as
payment for the rental or lease of the Devices? Will the result change if the Device is
owned by the Company rather than owned by the Vendor?
7) If any of the premium content fees paid by restaurant customers are determined to be
taxable as a rental or lease of personal property, does the Commission consider the
Company’s use of each Device to include both a sale to the customer and taxable
business use, in which case both revenue streams would be subject to tax?
TAXPAYER’S POSITION
Premium Content Fees
The Company believes the fees charged to customers for access to premium content on the
Mobile Point of Sale Device are exempt from sales tax in Utah. The Company would like
confirmation as to this position.
Utah imposes sales and use tax on sales or rentals of tangible personal property (which includes
prewritten software), telecommunications services, and amounts paid as admissions or user fees
to places of amusement or entertainment, such as theaters, movies, operas, museums,
planetariums, shows, and concerts.2 Taxable admissions or user fees also include charges for
access to video or video games, television programs, and cable or satellite broadcasts.3
Utah, however, specifically exempts sales or rentals of the right to use or operate unassisted
amusement devices for the purpose of amusement, entertainment, or recreation. 4 The term
"unassisted amusement device" includes amusement or skill devices, such as arcade games, that
are started and stopped by the person that purchases or rents the right to use the device.5
The Company acknowledges that fees to access the premium content (i.e., news, videos, sports,
educational items, and interactive games) would likely be considered taxable amusement or
entertainment fees if not provided through the Mobile Point of Sale Device. However, because
customers are solely responsible for starting and stopping the premium content and because
customers remain in exclusive control of the Device while accessing the premium content, the
Company asserts that the Mobile Point of Sale Device falls directly within the definition of an
“unassisted amusement device,” and the premium content fees are thus exempt.
2
Utah Code Ann. §59-12-103(1); Utah Code Ann. §59-12-102(123)(b); Publication 25, SUT General
Information, revised June 2014.
3
Utah Admin. Code §R865-19S-108.
4
Utah Code Ann. §59-12-104(40).
5
Utah Code Ann. §59-12-102(133); Publication 25, SUT General Information, revised June 2014.
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Should the Commission not consider the Mobile Point of Sale Device to be an unassisted
amusement device, the Company would like confirmation as to whether any fees for access to
premium content would be subject to sales tax, and if so, how those fees would be properly
classified for sales and use tax purposes.
The Company acknowledges that when the customer pays a specific fee for the use of the Device
to access premium content, the Commission may consider the payment of such fees to be
payment for the rental or lease of personal property.6 If the Commission were to determine that
this is the correct interpretation of the taxability of the fee for sales tax purposes, the Company
concedes that it would be required to collect tax on the fees at the current state tax rate.
The Company also understands that Utah imposes sales tax on telecommunications services,
which include the electronic conveyance, routing, or transmission of audio, data, video, voice, or
any other information or signal to a point, or among or between points. However, the term
specifically excludes Internet access service, radio and television audio and video programming
services, and products (including music) delivered electronically.7
Fees charged to customers for access to the game content, which consists solely of game
application software that resides on each Device, do not enable customers to transmit, route, or
convey data. Thus, there are no telecommunications services being provided in connection with
the game fees. In addition, because telecommunication services do not include Internet access,
radio and television audio and video programming services, the Company further believes that
any premium content fees to access news and social media or to select songs from the restaurant
playlist would not be considered telecommunications services.
Fees Paid to Vendor
The Company acknowledges that the Vendor’s monthly service charges would likely be viewed
as a rental or lease of the Devices.8 The Company would like the Commission to confirm this
position.
In addition, the Company also pays the Vendor (who retains title to the Devices) a commission
based on a percentage of receipts from the game and song fees. The Company would like to
confirm whether the commissions would be subject to sales tax as the rental or lease of personal
property from the Vendor to the Company, and whether the result would change if the Device is
owned by the Company rather than the Vendor.
If either the monthly service charges or commissions paid to the Vendor are subject to tax, the
Company would also like to confirm whether it may self-accrue use tax on the amount deemed to
be rental payments to the Vendor.
6
Utah Admin. Code §R865-19S-32.
7
Utah Code Ann. §59-12-102(127).
8
Utah Admin. Code §R865-19S-32.
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Finally, the Company requests guidance from the Commission regarding an alternative scenario
in which the Vendor will not charge the Company a monthly service fee for use of the Devices,
but will instead receive from the Company all of the premium content fees up to a maximum
amount, at which time the fees in excess of such amount will be shared with the Company.
Absent the monthly service fee, the Company seeks confirmation from the Commission as to
whether the premium content fees provided by the Company to the Vendor as commissions
would be viewed as payment for the rental or lease of the Devices and whether the result will
change if the Device is owned by the Company rather than owned by the Vendor.
CONCLUSION
The Company believes the fees charged for access to premium content on the Mobile Point of
Sale Device are exempt from sales tax in Utah as access to an “unassisted amusement device.”
The Company acknowledges that certain fees paid by the Company to the Vendor that owns the
Devices may be subject to sales tax. The Company would like the Commission to provide its
determinations for the Company’s questions, as discussed above.
Due to the significant impact the Commission’s determination could have on the restaurant
industry in Utah, we would respectfully request a conference with the Commission to discuss
these issues before a decision is issued.
If you have any questions, please contact the undersigned at PHONE NUMBER.
Respectfully submitted this 20th day of August 2015,
SIGNATURE REMOVED
NAME-1*
Director
TAX FIRM
ADDRESS -2
CITY-2, STATE-2 ZIP CODE
PHONE NUMBER, FAX NUMBER Facsimile
MOBILE NUMBER, Mobile
*TAX FIRM is not a law firm.
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RESPONSE LETTER
PRIVATE LETTER RULING 15-007
June 29, 2016
NAME-1
Director
TAX FIRM
ADDRESS-2
CITY-2, STATE-2 ZIP CODE
RE: Private Letter Ruling Request – Sales and Use Taxability of Sales of Table Top Point of
Sale (“POS”) Device System in Restaurants
Dear NAME-1 :
This letter is in response to your request for a private letter ruling on behalf of your client,
THE COMPANY (“Restaurant Company”). You have inquired about the Utah sales and use tax
treatment of two types of transactions. The first is the sale, lease, or rental by a vendor
(“Vendor”) to the Restaurant Company of a POS device system that uses computer tablets as
POS devices located on the restaurant tables. The second is the sales by the Restaurant
Company to its customers of access through the computer tablets to premium content (news,
sports, access to social media, selecting songs to be played on the restaurant’s playlist, as well as
access to interactive games).
As explained in section IV. Analysis below, the payments by the Restaurant Company to
the Vendor for the POS device system are subject to Utah sales and use taxes, while the
payments by the restaurant customers to the Restaurant Company for access to premium content
are exempt from Utah sales and use taxes under § 59-12-104(40)(a).
This private letter ruling is comprised the following sections: I. Facts, II. Issues,
III. Applicable Law, IV. Analysis, and V. Conclusions.
I. Facts
You have described the facts as follows:
[Restaurant Company] (“the Company”) is a . . . dining company with
restaurant locations in Utah. The Company has initiated a pilot program
incorporating the use of a mobile point of sale device (herein “Mobile Point of
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Sale Device” or “Device”) at its restaurant locations. The Device accommodates
tabletop menu, ordering, and payment in some of its Utah locations. The Device is
an Android tablet with a touch screen interface that is located at each table. It
provides pictures/detailed descriptions of the menu items and allows customers to
place drink, appetizer, and entree orders, and pay their check directly through the
Device. The customer has the option to pay their guest check by credit card, debit
card, or gift card on the Device. Alternatively, it can be paid through their
server/wait staff if preferred.
The Mobile Point of Sale Device also allows restaurants the option to
enhance the customer experience by allowing access to premium content located
on the Device. This content could include news, sports, access to social media,
selecting songs to be played on the restaurant’s playlist as well as access to
interactive games. The Company will charge separate fees for access to games on
the Device, access to current news and social media, and for song selections. The
game application software resides within each Device. During the pilot phase, the
Company will charge only for game fees, and the use of the Device to access
news content will be free. The premium content fee will be included as a line
item on the customer’s food and beverage bill. The vendor (“Vendor”) of the
Mobile Point of Sale Device has indicated to the Company that at the average
restaurant over 80% of the restaurant customers use the Device for ordering
and/or payment at the end of the meal, while only 12-20% of the customers access
any premium content located on the Device.
The owner of the Devices charges the Company a monthly service fee for
the use of the Devices. Per the agreement between the Vendor and the Company,
the Company will be responsible for the collection of the revenue generated by
accessing the premium content and collection/remittance of any applicable state
or local taxes imposed on the transactions. Additionally, the Vendor may also
charge monthly commissions to the Company as a percentage of the game fee and
song fee income. The Company will be required to pay to the Vendor a portion
(or potentially all) of the revenue generated by these premium content fees.
In a possible alternative scenario, the Vendor will not charge the Company
a monthly service fee for use of the devices, but will instead receive from the
Company all of the premium content fees up to a maximum amount, at which
time the fees in excess of such amount will be shared with the Company.
The Mobile Point of Sale Device was developed specifically for the
restaurant industry. The primary purpose of the Device is to facilitate (1) order
placement, (2) order add-ons, (3) checkout/payment, and (4) customer satisfaction
surveys. The benefits of the Device to the restaurant industry include increased
food and beverage sales, a quicker table turnover, and increased guest loyalty and
satisfaction. To achieve these desired results, the Company will provide one
Mobile Point of Sale Device at each individual table within each restaurant. The
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average restaurant will typically contain 50 tables, and on average 50 Mobile
Point of Sale Devices would then be used at each establishment.
It is the Company’s intent that access to premium content (including news,
videos, sports, educational items, and interactive games) is ancillary to the true
purpose of the Device as part of the Company’s established point of sale order
and payment system. . . .
During a telephone call, you explained more about the access to the premium content the
Restaurant Company may sell to its customers. The customers’ access to premium content is
limited by the apps located on the computer tablets; customers do not have access to an internet
browser through the computer tablets. After a conference call you provided a follow-up email
with the following facts:
[1.] Music that is played in the restaurant resides on location.
[2.] A guest may select one song at a time/per payment, to be played in the
restaurant.
[3.] There is no Wi-Fi network access fee. The browser is actually on a closed
system, so there is no internet available for premium content – it is all contained
within the device.
With your request letter, you also provided the Utah State Tax Commission with a
redacted Service Agreement between the Vendor and the Restaurant Company.
The terms found in your request for a private letter ruling need to be reconciled with
terms used in the Service Agreement. Below, the meanings of certain terms found in the Service
Agreement are discussed. Then, those terms are matched to the terms used in your request letter.
The Service Agreement includes Appendix One: Fees and Payment Terms, which states
that the Restaurant Company shall pay the Vendor the “Service Fees” which are calculated per
restaurant location per billing period based on a stated number of displays in that restaurant
location.1 The Service Agreement also includes a First Amendment, which states that the
Restaurant Company shall pay to the Vendor “Premium Content Fees” if the Restaurant
Company’s “Premium Content Revenue” earned from the Restaurant Company’s customers,
exceeds the Service Fees paid by the Restaurant Company to the Vendor.2 The Premium
Content Fees paid by the Restaurant Company to the Vendor are calculated as a set percentage of
the excess of the Premium Content Revenue received by the Restaurant Company over the
Service Fees to be paid by the Restaurant Company.3,4
1
Service Agreement, Appendix One, § 2.(a).
2
First Amendment to Service Agreement, § 6.
3
First Amendment to Service Agreement, § 6.
4
The Service Agreement, Appendix One, § 2(c)-(d), includes a WIFI Network Access fee that is
potentially payable by a restaurant company to the Vendor and a Promotions Fee that is potentially
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Notably, the terms used in your request letter are not identical to the terms used in the
Service Agreement and First Amendment. For the transactions between the Restaurant
Company and its customers, in your letter the Restaurant Company charges the “premium
content fee” to its customers and, in the Service Agreement and First Amendment, the
Restaurant Company earns “Premium Content Revenue” from its customers. For the
transactions between the Vendor and the Restaurant Company, in your letter, the Vendor charges
the Restaurant Company a “monthly service fee” and “monthly commissions,” and in the
Service Agreement and First Amendment, the Vendor charges the Restaurant Company “Service
Fees” and “Premium Content Fees.” Below is a table that summarizes the information explained
above.
Terms Used in Service
Agreement and First
Description Terms Used in Request Letter Amendment
A charge paid by the
customers to the Restaurant
Company; revenue of the premium content fee Premium Content Revenue
Restaurant Company
received from its customer
A charge by the Vendor to
monthly service fee Service Fees
the Restaurant Company
A charge by the Vendor to
monthly commissions Premium Content Fees
the Restaurant Company
The Service Agreement also includes information on the POS device system, which you
described as the Mobile Point of Sale Device or Device in your letter.
The POS device system includes the Display, which includes “the monitor display [and
its] Content,”5 with the content including “the information, visuals, and images . . . displayed on
the Display[,] printed from the Display[,] or printed on the email receipt [] provided to [the
Customers].”6 The POS device system’s equipment includes more than just the Displays; it
includes “any other components provided by [the Vendor] . . . including . . . the associated
server, wifi controller, access points, [etc.]7 “[A]ll of the [e]quipment [involved in the POS
device system] is and shall remain personal property of [the Vendor].”8 The Vendor “(or its
third-party providers as applicable) owns and retains title to all Equipment, all Intellectual
Property, all portions thereof[,] any copies thereof, and any modifications thereto.” 9 The POS
device system is not a stand-alone system; the POS device system utilizes “online web-based
payable by the Vendor to a restaurant company. You have not inquired about the tax treatment of these
two fees; thus, they are not analyzed in this private letter ruling.
5
Service Agreement, § 1. Definitions, “Display.”
6
Service Agreement, § 1. Definitions, “Content.”
7
Service Agreement, § 1. Definitions, “Equipment.”
8
Service Agreement, § 4.2.4.2.
9
Service Agreement, § 8.
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applications and platform hosted by [Vendor] for [Restaurant Company]”10 The Restaurant
Company is responsible for providing the Vendor “VPN access . . . for the purpose of providing
the Service.”11 The Vendor or its agents “install and configure . . . [the] Equipment at each of
the Restaurants,”12 and the Restaurant Company “shall permit [Vendor] or [Vendor’s] Agents . . .
reasonable physical access to the Restaurants.”13 The Service Agreement describes the Vendor
as providing a “Service” to the Restaurant Company.14 Overall, based on the above discussion,
the POS device system involves both computer hardware and software.
As discussed below, the Service Agreement provides for the Vendor to control the
software and for the Restaurant Company to have only use of the software. The Restaurant
Company has “a non-exclusive, nontransferable license to access and use the []Service . . . for
internal operations purposes only . . .”15 The Vendor is to “create, manage, and have the right to
modify at any time, any aspect of the Display . . .”16 The Restaurant Company is restricted from
“copy[ing] the Service . . . or Content . . . [and from] disassembl[ing], . . . reverse engineering, .
. . tampering [with,] transfer[ring etc.] the Service.”17 The Vendor does not grant the Restaurant
Company any “license, right, or interest in [the Vendor’s] Intellectual Property.”18 The Vendor
or the Vendor’s agents “install and configure the . . . [POS device system,] perform POS system
integration and testing . . ., provide an electronic copy of standard [] training materials . . .” 19
The Vendor or Vendor’s agents “will . . . [h]ost the Service of the Restaurants [] and [] provide
technical support of the [] Service . . .”20 The Vendor “provide[s] content updates,”21 “software
updates,”22 and “secur[es] any Privacy Information, customer names, addresses, and email
addresses in its possession.”23
II. Issues
In your request letter, you stated the following:
1) Based on the information provided, does the Utah State Tax Commission
(“Commission”) consider the Device to constitute an “unassisted amusement
device,” the operational receipts from which are exempt from sales tax as
provided by Utah Code Ann. §59-12-104(40)?
10
Service Agreement, § 1. Definitions, “Service.”
11
Service Agreement, § 4.2.3.
12
Service Agreement, § 4.1.1.
13
Service Agreement, § 4.2.3.
14
Service Agreement, § 1. Definitions, “Service.”
15
Service Agreement, § 2.1.
16
Service Agreement, § 2.3.
17
Service Agreement, § 3.
18
Service Agreement, § 3.
19
Service Agreement, § 4.1.1.
20
Service Agreement, § 4.1.2.
21
Service Agreement, § 4.1.3.
22
Service Agreement, § 4.1.4.
23
Service Agreement, § 4.1.5.
11
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2) Should the Commission not consider the Mobile Point of Sale Device to be an
unassisted amusement device, would the following fees charged for access to
the premium content be subject to sales tax:
a. Fee for unlimited access to games that are stored on the Device; if so, are
such fees properly categorized as amounts paid for the rental or use of
tangible personal property or fees or admissions for amusement or
entertainment?
b. Fee for unlimited access to current news events and social media; if so, are
such fees properly categorized as amounts paid for the rental or use of
tangible personal property, fees or admissions for amusement or
entertainment, or telecommunications services?
c. Fees for songs that are selected to be played in the restaurant; if so, are
such fees properly categorized as amounts paid for the rental or use of
tangible personal property, fees or admissions for amusement or
entertainment, or telecommunications services?
3) If a single premium content fee is charged for unlimited access to games
stored on the Device and unlimited access to current news events and social
media, how will Utah view this single charge?
4) Are the monthly service fees paid by the Company to the Vendor, who retains
title to the devices, subject to tax as a rental or lease of personal property? If
so, can the Company self-accrue use tax on the amount deemed as rental or
lease payments to the Vendor?
5) Are the fees described as commissions paid by the Company to the Vendor,
who retains title to the devices, subject to tax as a rental or lease of personal
property? If so, can the Company self-accrue use tax on the amount deemed as
rental or lease payments to the Vendor? Will the result change if the Device is
owned by the Company rather than the Vendor?
6) If the Vendor does not charge the Company a monthly service fee for use of
the Devices, but instead receives from the Company all of the premium
content fees up to a maximum amount, at which time the fees in excess of
such amount are shared with the Company, would such fees provided by the
Company to the Vendor as commissions be viewed as payment for the rental
or lease of the Devices? Will the result change if the Device is owned by the
Company rather than owned by the Vendor?
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7) If any of the premium content fees paid by restaurant customers are
determined to be taxable as a rental or lease of personal property, does the
Commission consider the Company’s use of each Device to include both a
sale to the customer and taxable business use, in which case both revenue
streams would be subject to tax?
The answers to your questions are in Section IV. Analysis, and a summary of the answers are in
Section V. Conclusions.
III. Applicable Law
Utah Code Ann. § 59-12-103(1) imposes Utah sales and use tax and states the following
in part:
A tax is imposed on the purchaser . . . for amounts paid or charged for the
following transactions:
(a) retail sales of tangible personal property made within the state . . .
....
(f) except as provided in Section 59-12-104, amounts paid or charged as
admission or user fees for theaters, movies, operas, museums, planetariums,
shows of any type or nature, exhibitions, concerts, carnivals, amusement
parks, amusement rides, circuses, menageries, fairs, races, contests, sporting
events, dances, boxing matches, wrestling matches, closed circuit television
broadcasts, billiard parlors, pool parlors, bowling lanes, golf, miniature golf,
golf driving ranges, batting cages, skating rinks, ski lifts, ski runs, ski trails,
snowmobile trails, tennis courts, swimming pools, water slides, river runs,
jeep tours, boat tours, scenic cruises, horseback rides, sports activities, or any
other amusement, entertainment, recreation, exhibition, cultural, or athletic
activity;
....
(k) amounts paid or charged for leases or rentals of tangible personal property if
within this state the tangible personal property is:
(i) stored;
(ii) used; or
(iii) otherwise consumed;
(l) amounts paid or charged for tangible personal property if within this state the
tangible personal property is:
(i) stored;
(ii) used; or
(iii) consumed . . .
....
Utah Code Ann. § 59-12-102 defines multiple terms, including the following in part:
(14) "Assisted amusement device" means an amusement device, skill device, or
ride device that is started and stopped by an individual:
13
Page 14
(a) who is not the purchaser or renter of the right to use or operate the
amusement device, skill device, or ride device; and
(b) at the direction of the seller of the right to use the amusement device,
skill device, or ride device.
....
(26) "Computer" means an electronic device that accepts information:
(a) (i) in digital form; or
(ii) in a form similar to digital form; and
(b) manipulates that information for a result based on a sequence of
instructions.
(27) "Computer software" means a set of coded instructions designed to cause:
(a) a computer to perform a task; or
(b) automatic data processing equipment to perform a task.
....
(93) (a) . . . . "prewritten computer software" means computer software that is not
designed and developed:
(i) by the author or other creator of the computer software; and
(ii) to the specifications of a specific purchaser.
....
(99)
(a) "Purchase price" and "sales price" mean the total amount of
consideration:
(i) valued in money; and
(ii) for which tangible personal property, a product transferred
electronically, or services are:
(A) sold;
(B) leased; or
(C) rented.
....
(100) "Purchaser" means a person to whom:
(a) a sale of tangible personal property is made;
(b) a product is transferred electronically; or
(c) a service is furnished.
....
(107) "Retail sale" or "sale at retail" means a sale, lease, or rental for a purpose
other than:
(a) resale;
(b) sublease; or
(c) subrent.
....
(109)(a) "Sale" means any transfer of title, exchange, or barter, conditional or
otherwise, in any manner, of tangible personal property or any other
taxable transaction under Subsection 59-12-103(1), for consideration.
(b) "Sale" includes:
....
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(v) any transaction under which right to possession, operation, or use of
any article of tangible personal property is granted under a lease or
contract and the transfer of possession would be taxable if an
outright sale were made.
....
(124) . . . .
(b) "Tangible personal property" includes:
....
(v) prewritten computer software, regardless of the manner in which the
prewritten computer software is transferred.
....
(134) "Unassisted amusement device" means an amusement device, skill device, or ride
device that is started and stopped by the purchaser or renter of the right to use or
operate the amusement device, skill device, or ride device.
Utah Code Ann. § 59-12-104(40)(a) provides the following exemption from Utah sales
and use taxes, stating in part:
[S]ales or rentals of the right to use or operate for amusement, entertainment, or
recreation an unassisted amusement device as defined in Section 59-12-102 . . . .
Utah Code Ann. § 59-12-211(12) provides the location of sales that involve the
purchasers’ use of software when there is not a transfer of a copy of the software, with
Subsection (12) stating the following:
(a) Notwithstanding any other provision of this section and except as provided in
Subsection (12)(b), if a purchaser uses computer software and there is not a
transfer of a copy of that software to the purchaser, the location of the
transaction is determined in accordance with Subsections (4) and (5).
(b) If a purchaser uses computer software described in Subsection (12)(a) at
more than one location, the location of the transaction shall be determined in
accordance with rules made by the commission in accordance with Title 63G,
Chapter 3, Utah Administrative Rulemaking Act.
(Emphasis added.)
When § 59-12-211(12) applies, subsections (4) and (5) of Utah Code Ann. § 59-12-211 locate
transactions at an address for the purchaser.24
Utah Code Ann. § 59-12-107(2) imposes collection and remittance requirements on
sellers engaging in certain activities within this state, as follows in part:
24
For more explanation about § 59-12-211, you may contact the Taxpayer Services Division, Technical
Research Unit, by phone at 801-297-7705, by email at [email protected], or by mail at 210 N 1950 W,
Salt Lake City, UT 84134.
15
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(a) Except as provided in Subsection (2)(e) . . ., each seller shall pay or collect
and remit the sales and use taxes imposed by this chapter if within this state
the seller:
(i) has or utilizes:
(A) an office;
(B) a distribution house;
(C) a sales house;
(D) a warehouse;
(E) a service enterprise; or
(F) a place of business similar to Subsections (2)(a)(i)(A) through (E);
(ii) maintains a stock of goods;
(iii) regularly solicits orders, regardless of whether or not the orders are
accepted in the state, unless the seller's only activity in the state is:
(A) advertising; or
(B) solicitation by:
(I) direct mail;
(II) electronic mail;
(III) the Internet;
(IV) telecommunications service; or
(V) a means similar to Subsection (2)(a)(iii)(A) or (B);
(iv) regularly engages in the delivery of property in the state other than by:
(A) common carrier; or
(B) United States mail; or
(v) regularly engages in an activity directly related to the leasing or
servicing of property located within the state.
....
(e) A person shall pay a use tax imposed by this chapter on a transaction
described in Subsection 59-12-103(1) if:
(i) the seller did not collect a tax imposed by this chapter on the transaction;
and
(ii) the person:
(A) stores the tangible personal property or product transferred
electronically in the state;
(B) uses the tangible personal property or product transferred
electronically in the state; or
(C) consumes the tangible personal property or product transferred
electronically in the state.
....
IV. Analysis
As stated in the first paragraph of this letter, you have inquired about the Utah sales and
use tax treatment of sales by the Vendor to the Restaurant Company of a POS device system that
uses computer tablets located on the restaurant tables. You have also inquired about the Utah
sales and use tax treatment of sales by the Restaurant Company to its customers of access to
16
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premium content (news, sports, access to social media, selecting songs to be played on the
restaurant’s playlist as well as access to interactive games) through the computer tablets.
First, this Analysis section addresses in subsections A.-D. the Vendor’s sales to the
Restaurant Company of a POS device system. Second, this Analysis section addresses in
subsections E.-F. the Restaurant Company’s sales to its customers of access to premium content
through the computer tablets.
A. The Vendor’s Sales to the Restaurant Company of a POS Device System are Subject
to Utah Sales and Use Taxes.
When the Restaurant Company uses the POS device system at restaurant locations in
Utah, the Vendor’s sales, leases, or rentals of the POS device system are subject to tax under
§ 59-12-103(1)(a), (k), and (l) as “amounts paid or charged for . . . retail sales of tangible
personal property made within the state . . .”; as “amounts paid or charged for leases or rentals of
tangible personal property if within this state the tangible personal property is . . . used . . . or . . .
otherwise consumed”; and as “amounts paid or charged for tangible personal property if within
this state the tangible personal property is . . . used . . . or . . . consumed . . .” 25
For the transaction presented, the Utah sales and uses taxes are calculated based on the
purchase price of the POS device system. Utah Code Ann. § 59-12-102(99) defines purchase
price as “the total amount of consideration . . . valued in money . . . for which tangible personal
property, a product transferred electronically, or services are: . . . sold; . . . leased; or . . . rented.”
For the POS device system, the total amount of consideration for which the POS device system
is sold, leased, or rented includes both the monthly service fee (“Service Fees” in the Service
Agreement) and the monthly commissions (“Premium Content Fees” in the Service Agreement).
In the Service Agreement, the Premium Content Fees are calculated in part using the
Premium Content Revenue the Restaurant Company earns from its customers. The Service
Agreement, however, does not state the Vendor charges the Premium Content Fees for providing
the premium content to the Restaurant Company. Assuming the Vendor charges the Premium
Content Fees for providing the premium content to the Restaurant Company, these fees would
still be subject to Utah sales and use taxes. For the games, the Vendor is selling the Restaurant
Company use of the Vendor’s game software, which is prewritten computer software. Prewritten
computer software is tangible personal property under § 59-12-102(124)(b)(v), and the sale of
this tangible personal property is taxable under § 59-12-103(1)(a), (k), and (l). For the news and
social media, the Vendor is selling the Restaurant Company use of the Vendor’s app, which is
likewise prewritten computer software and tangible personal property, the sale of which is
taxable. For the songs, the Vendor is selling the Restaurant Company use of the Vendor’s
prewritten computer software to play the songs and might also be selling the Restaurant
Company the songs that are stored digitally at the restaurant locations. The sales of either the
25
Section 59-12-103 uses the term “retail sale.” This term is defined in § 59-12-102(107) as “a sale,
lease, or rental for a purpose other than: (a) resale; (b) sublease; or (c) subrent.”
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software or the songs, or both, are subject to Utah sales and use taxes under § 59-12-103(1)(a),
(k), and (l).
B. Assuming the Restaurant Company Were to Own the Computer Hardware Used for
the POS Device System Located at the Restaurants, the Vendor’s Sale to the
Restaurant Company of the Use of the Vendor’s Computer Software for the POS
Device System Would Still be Subject to Utah Sales and Use Taxes.
You inquired whether the Utah sales and use tax treatment will change if the Restaurant
Company were to own the Device instead of the Vendor owning it. In summary, the tax
treatment would not change in such a situation. As discussed in the previous subsection A. of
this Analysis section, when the Vendor owns the computer hardware and software of the POS
device system, the sale of that POS device system to the Restaurant Company is taxable under
§ 59-12-103(1)(a), (k), and (l). Alternatively, when the Vendor owns the software for the POS
device system, but does not own the computer hardware located at the restaurants, the Vendor’s
sale of the use of its computer software to the Restaurant Company is still taxable under
§ 59-12-103(1)(a), (k), and (l), as explained below.
Under your facts, some of the Vendor’s software, such as the game application software,
is located on the computer hardware at the restaurant and some of the Vendor’s software is
accessed remotely from the restaurant locations. The remote access is seen in the Service
Agreement, § 1. Definitions, “Service.” The Vendor’s software at both locations meets the
definition of “computer software,” found in § 59-12-102(27).
No facts suggest the Vendor designed and developed its computer software specifically
for the Restaurant Company. Under § 59-12-102(93)(a), “prewritten computer software means
computer software that is not designed and developed . . . by the . . . creator of the computer
software . . . to the specifications of a specific purchaser” (internal quotes omitted). Thus, the
Vendor’s sale of use of its software to the Restaurant Company is a sale of the use of prewritten
computer software.
Under § 59-12-102(124)(b)(v), the Utah Code specifically states that prewritten computer
software is tangible personal property. Transactions involving tangible personal property are
subject to Utah sales and use taxes under § 59-12-103(1)(a), (k), and (l).
For purposes of § 59-12-103, § 59-12-102(109)(b)(v) broadly defines “sale” to include
“any transaction under which right to . . . use of any article of tangible personal property is
granted under a lease or contract and the transfer of possession would be taxable if an outright
sale were made” (emphasis added).
Under the alternative scenario presented in this subsection, the Vendor is selling to the
Restaurant Company the right to use the Vendor’s prewritten software so that the Restaurant
Company will have a working POS device system. The Vendor’s sale of the use of its prewritten
software is the sale of tangible personal property. Such a sale is taxable under § 59-12-103(1)(a),
(k), and (l) when the sale is made within Utah.
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Section 59-12-211(12) addresses situations in which “a purchaser uses computer software
and there is not a transfer of a copy of that software to the purchaser.” In such situation,
§ 59-12-211 instructs “the location of the transaction is determined in accordance with
Subsection (4).” Under subsection (4) of § 59-12-211, “the location of the transaction is the
[purchaser’s] address [as recorded in] the seller’s records . . .” Thus, the Vendor’s sales of the
use of the Vendor’s prewritten software should be located based on the Restaurant Company’s
address(es).26
The agreement between the Vendor and the Restaurant Company is titled “Service
Agreement” and describes the sale from the Vendor to the Restaurant Company as the sale of a
service. However, this private letter ruling concludes the Vendor is not selling a service, based
on both the facts presented and an analysis of the essence, or primary object, of the transaction,
which is explained below.
The Utah Supreme Court has explained the essence of the transaction as follows:
[T]he essence of the transaction theory[] focuses on the nature of what was sold
and whether it primarily entails tangible personal property. . . . This theory
examines the transaction as a whole to determine whether the essence of the
transaction is one for services or for tangible personal property. The analysis
typically requires a determination either that the services provided are merely
incidental to an essentially personal property transaction or that the property
provided is merely incidental to an essentially service transaction. . . .
B.J.-Titan Services v. State Tax Comm’n, 842 P.2d 822, 825 (Utah 1992) (internal
citations removed).
To decide whether the essence of the transaction is one for use of the Vendor’s software or for a
service provided by the Vendor, one must consider the nature and extent of the use of the
software compared with that of the services provided by the Vendor’s personnel. That analysis
is as follows. The Vendor’s prewritten software is essential to the transaction between the
Vendor and the Restaurant Company; the software is necessary for the Restaurant Company’s
computer hardware to function as a POS device system. Furthermore, the services provided by
the Vendor’s personnel are designed to support the Restaurant Company’s use of the Vendor’s
software. As seen in the Service Agreement, the Vendor’s employees or agents install and
configure the software at the restaurant locations, perform POS system integration and testing,
and provide training materials, technical support, software updates, and security. All of these
facts show that the essence of the transaction is for the software, not for the services of the
Vendor’s personnel.
26
If you want more direction about this area, you may review Section (4) of the Utah Administrative
Code R865-19S-92, available on the tax.utah.gov website. You may also contact the Taxpayer Services
Division, Technical Research Unit, using the contact information at the end of footnote 24.
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C. The Restaurant Company’s Duty to Pay Utah Use Taxes Depends on Whether the
Vendor Collected Utah Sales Taxes on the Transaction. If the Vendor Has a Duty to
Collect and Remit Utah Sales Taxes, the Vendor and Restaurant Company Cannot
Transfer Through an Agreement the Vendor’s Duty to Collect and Remit the Taxes,
from the Vendor to the Restaurant Company.
You inquired if the Restaurant Company could self-accrue use taxes on the purchase of
the POS device system from the Vendor. Utah Code Ann. § 59-12-107(2)(a) imposes a Utah
sales and use tax collection and remittance requirement on sellers engaging in certain activities in
Utah. Utah Code Ann. § 59-12-107(2)(e) imposes a Utah use tax payment requirement on
purchasers engaging in taxable transactions in Utah for which the seller did not collect Utah sales
taxes. If the Vendor collects and remits Utah sales taxes on the lease of the POS device system,
or alternatively on the sales of the use of the Vendor’s software, then the Restaurant Company
would not pay Utah use taxes on that transaction. If the Vendor does not collect and remit Utah
sales taxes on the lease of the POS device system, or alternatively on the sale of the use of the
Vendor’s software, then under § 59-12-107(2)(e), the Restaurant Company must pay Utah use
taxes on that transaction. If under § 59-12-107(2)(a) the Vendor is required to collect and remit
Utah sales and use taxes because of the extent of the Vendor’s activities within Utah, the Vendor
and Restaurant Company cannot, through their agreement, transfer the Vendor’s requirement to
collect and remit Utah sales taxes from the Vendor to the Restaurant Company.
D. Answers to Your Questions Numbered 4-6.
Addressed below are your issues numbered 4-6, which concern the Company’s purchase
of the POS device system from the Vendor.
You asked the following:
4) Are the monthly service fees paid by the Company to the Vendor, who retains
title to the devices, subject to tax as a rental or lease of personal property? If
so, can the Company self-accrue use tax on the amount deemed as rental or
lease payments to the Vendor?
The monthly service fees paid by the Restaurant Company to the Vendor are part of the purchase
price of the POS device system and, as such, are subject to Utah sales and use taxes. The
Restaurant Company must pay Utah use taxes on the transaction if the Vendor did not collect
Utah sales taxes on the transaction. The analysis for subsection C. above applies here.
You asked the following:
5) Are the fees described as commissions paid by the Company to the Vendor,
who retains title to the devices, subject to tax as a rental or lease of personal
property? If so, can the Company self-accrue use tax on the amount deemed as
rental or lease payments to the Vendor? Will the result change if the Device is
owned by the Company rather than the Vendor?
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The commissions (termed “Premium Content Fees” in the Service Agreement and First
Amendment) paid by the Restaurant Company to the Vendor are part of the purchase price of the
POS device system and, as such, are subject to Utah sales and use taxes. The Restaurant
Company must pay Utah use taxes on the transaction if the Vendor did not collect Utah sales
taxes on the transaction. The analysis for subsection C. above applies here. The result will not
change if the computer hardware of the POS device system is owned by the Restaurant Company
instead of the Vendor.
You asked the following:
6) If the Vendor does not charge the Company a monthly service fee for use of
the Devices, but instead receives from the Company all of the premium
content fees up to a maximum amount, at which time the fees in excess of
such amount are shared with the Company, would such fees provided by the
Company to the Vendor as commissions be viewed as payment for the rental
or lease of the Devices? Will the result change if the Device is owned by the
Company rather than owned by the Vendor?
Under this scenario, the commissions (termed “Premium Content Fees” in the Service
Agreement and First Amendment) paid by the Restaurant Company to the Vendor comprise the
full purchase price of the POS device system and, as such, are subject to Utah sales and use
taxes. The result will not change if the hardware of the POS device system is owned by the
Restaurant Company instead of the Vendor. If the Restaurant Company owns the hardware, the
Vendor will still be engaging in the taxable sale of the use of the Vendor’s prewritten computer
software.
E. The Restaurant Company’s Sales to its Customers of Access to Premium Content
Through the Computer Tablets are Exempt from Utah Sales and Use Taxes Under
§ 59-12-104(40), as Sales of Use of Unassisted Amusement Devices.
Section 59-12-103(1)(f) imposes Utah sales taxes on “amounts paid or charged as . . .
user fees for . . . any . . . amusement, entertainment, recreation, exhibition, cultural, or athletic
activity.” Section 59-12-104(40)(a) provides an exemption for “sales or rentals of the right to
use or operate for amusement, entertainment, or recreation an unassisted amusement device.”
Section 59-12-102(134) defines “[u]nassisted amusement device" as “an amusement device [or]
skill device . . . that is started and stopped by the purchaser or renter of the right to use or operate
the amusement device [or] skill device . . . .” Section 59-12-102(14) defines "[a]ssisted
amusement device" as “an amusement device [or] skill device . . . that is started and stopped by
an individual . . . who is not the purchaser or renter of the right to use or operate the amusement
device [or] skill device . . . ; and . . . [started and stopped] at the direction of the seller of the right
to use the amusement device [or] skill device . . . .”
The premium content fees charged by the Restaurant Company to its customers are
“amounts . . . charged as . . . user fees for . . . [an] amusement, entertainment, recreation, . . .
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activity” (see § 59-12-103(1)(f)). These fees charged by the Restaurant Company are exempt
from sales and use taxes under § 59-12-104(40)(a), as being for “sales or rentals of the right to
use or operate for amusement, entertainment, or recreation an unassisted amusement device.”
When the customer uses the computer tablets located on the table tops, the customer is using the
POS device system as an amusement device. The computer tablets meet the definition of an
unassisted amusement device because the customers start and stop the amusement activities on
the computer tablets. The customer starts and stops the news, social media, interactive games,
and songs using the computer tablets; and the Restaurant Company’s employees are not assisting
the starting and stopping. For the songs, the customer is the person selecting the song to be
played in the restaurant and the Restaurant Company’s employees have no active role in playing
that song for the customer. Instead, the song is played using the Restaurant Company’s POS
device system and connected sound system.
The lack of activity by the Restaurant Company’s employees can be contrasted with the
activities of the employees of another, unrelated company. In a prior Commission decision for
Appeal No. 09-0049, the Commission found that a company’s go-karts used on the company’s
track were assisted amusement devices because the company’s customers were “waived on and
then off the track by employees at the direction of the [company] and the operation [of the go-
karts] [was] assisted and supervised by the [company]’s employees.”27
F. Answers to Your Questions Numbered 1-3 and 7.
Addressed below are your issues numbered 1-3 and 7, which concern the Restaurant
Company’s sales to its customers of access to premium content through the computer tablets.
You asked the following:
1) Based on the information provided, does the Utah State Tax Commission
(“Commission”) consider the Device to constitute an “unassisted amusement
device,” the operational receipts from which are exempt from sales tax as
provided by Utah Code Ann. §59-12-104(40)?
Yes, the Restaurant Company’s sales to its customers of access to premium content is exempt
from Utah sales taxes based on § 59-12-104(40).
You asked the following:
2) Should the Commission not consider the Mobile Point of Sale Device to be an
unassisted amusement device, would the following fees charged for access to
the premium content be subject to sales tax:
27
Prior Commission decisions are available through the www.tax.utah.gov website.
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a. Fee for unlimited access to games that are stored on the Device; if so, are such
fees properly categorized as amounts paid for the rental or use of tangible
personal property or fees or admissions for amusement or entertainment?
b. Fee for unlimited access to current news events and social media; if so, are
such fees properly categorized as amounts paid for the rental or use of
tangible personal property, fees or admissions for amusement or
entertainment, or telecommunications services?
c. Fees for songs that are selected to be played in the restaurant; if so, are such
fees properly categorized as amounts paid for the rental or use of tangible
personal property, fees or admissions for amusement or entertainment, or
telecommunications services?
Because the Restaurant Company’s sales to its customers of access to premium content through
the computer tablets are exempt from Utah sales taxes, your questions listed above do not apply.
You asked the following:
3) If a single premium content fee is charged for unlimited access to games
stored on the Device and unlimited access to current news events and social
media, how will Utah view this single charge?
The Utah Tax Commission would view the single charge for unlimited access as exempt from
Utah sales taxes under § 59-12-104(40).
You asked the following:
7) If any of the premium content fees paid by restaurant customers are
determined to be taxable as a rental or lease of personal property, does the
Commission consider the Company’s use of each Device to include both a
sale to the customer and taxable business use, in which case both revenue
streams would be subject to tax?
Based on our previous answers discussed above, your question listed for item 7) does not apply.
V. Conclusions
The payments by the Restaurant Company to the Vendor for the POS device system or
alternatively for the use of the Vendor’s software for the POS device system are subject to Utah
sales and use taxes. These payments include the monthly service fees and the commissions,
which are termed Service Fees and Premium Content Fees, respectively, in the Service
Agreement. If the Vendor does not collect Utah sales taxes on the payments, then the Restaurant
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Company must pay Utah use taxes on the payments. If the Vendor has a Utah collection and
remittance requirement, the Vendor and the Restaurant Company cannot transfer the Vendor’s
requirement to the Restaurant Company through their agreement.
The payments by the restaurants’ customers to the Restaurant Company for access to
premium content are exempt from Utah sales and use taxes under § 59-12-104(40), which
applies to “sales . . . of the right to use . . . for amusement, entertainment, or recreation an
unassisted amusement device.” If the Restaurant Company charges a single premium content fee
for unlimited access to games, current events, and social media, the Commission would view that
charge as exempt under § 59-12-104(40).
The Tax Commission’s conclusions are based on the facts as you described them and the
Utah law currently in effect. Should the facts be different or if the law were to change, a
different conclusion may be warranted. If you feel we have misunderstood the facts as you have
presented them, you have additional facts that may be relevant, or you have any other questions,
please feel free to contact the Commission.
Additionally, you may also appeal the private letter ruling in the following two ways.
First, you may file a petition for declaratory order, which would serve to challenge
the Commission's interpretation of statutory language or authority under a statute. This petition
must be in written form, and submitted within thirty (30) days after the date of this private letter
ruling. You may submit your petition by any of the means given below. Failure to submit
your petition within the 30-day time frame could forfeit your appeal rights and will be
deemed a failure to exhaust your administrative remedies. Declaratory orders are discussed
in Utah Administrative Code R861-1A-34 C.2., available online
at http://tax.utah.gov/commission/effective/r861-01a-034.pdf, and in Utah Administrative Code
R861-1A-31, available online at http://tax.utah.gov/commission/effective/r861-01a-031.pdf.
Second, you may file a petition for redetermination of agency action if your private letter
ruling leads to an audit assessment, a denial of a claim, or some other agency action at a division
level. This petition must be written and may use form TC-738, available online
at http://tax.utah.gov/forms/current/tc-738.pdf. Your petition must be submitted by any of the
means given below, within thirty (30) days, generally, of the date of the notice of agency action
that describes the agency action you are challenging.
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You may access general information about Tax Commission Appeals online
at http://tax.utah.gov/commission-office/appeals. You may file an appeal through any of the
means provided below:
• Best way—by email: [email protected]
• By mail: Tax Appeals
USTC
210 North 1950 West
Salt Lake City, UT 84134
• By fax: 801-297-3919
For the Commission,28
Rebecca L. Rockwell
Commissioner
RLR/aln
15-007
28
For this private letter ruling, the members of the Commission are Commission Chair Valentine, Commissioner
Cragun, and Commissioner Rockwell. Commissioner Pero is excused.
25
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