Indiana: Charges to Dining Customers for Access to Games and Songs on Mobile Devices are Not Taxable

February 2, 2017

In contrast to a recent Wisconsin ruling, Indiana determined that charges from tablets in restaurants are not taxable because the customers do not exercise control over the software.

Recently, a trend has begun amongst businesses – providing customers with tech toys, such as tablets, to enhance the customers’ overall experience. Restaurants have been quick to use tablets as a convenient way for customers to order food and pay the bill; additionally, customers can pay an extra fee to use the tablets to play games, watch news, listen to music, etc. This ultimately led to the question of whether or not that additional fee is taxable for sales/use tax purposes. Indiana recently addressed this issue in a revenue ruling. [1]

The taxpayer, one of the largest full-service casual dining companies located in most states, initiated a pilot program at all of its locations. The program incorporated the use of Android tablets being placed at each table for customers to use to either order food or pay their checks directly. Additionally, the customers were also given the option to access premium content located on the tablets, which includes news, sports, social media, music and interactive games. The taxpayer charged customers separately to access the premium content and billed it as a line item on the customer’s food and beverage bill. The vendor of the tablets charged the restaurant monthly fees for use of the device, which is determined based on either a monthly flat fee plus a percentage of the premium content revenue or the right to receive 100 percent of the premium content revenue up to a certain amount and then a percentage of additional premium revenue.

The first issue Indiana addressed was whether the monthly service fees the restaurant paid to the vendor were taxable. In Indiana, sales tax is imposed on retail transactions, including tangible personal property (e.g., tablets). Because the taxpayer uses the tablets for an indeterminate term, Indiana considers this a rental transaction; thus, the service fees are subject to sales tax. However, the taxpayer must self-assess and collect use tax because the vendor is located out of state and is not registered with Indiana.

Additionally, Indiana addressed whether the premium content fees charged to diners were subject to sales tax. These fees were viewed as being paid by the diners in consideration for the use of software, which is also considered tangible personal property in Indiana. However, because the customers do not exercise control over the software, they were not viewed as having a level of possession of the software required to be taxable. The ruling analogizes the right to access the premium content to a video game player. In both cases, the customer only has a right to play the game/access the content (i.e., software) for a short period of time, and does not get possession of the software. Therefore, Indiana concluded that the premium content fees were not subject to sales tax.

There are a couple points worth noting. First, a month after the ruling discussed above, Indiana published Information Bulleting ST8 (12/1/16). In the publication, the state explains that the taxability of software that can be accessed remotely is not specifically addressed by statute and may depend on the facts and circumstances of the transaction, such as the amount of control or possession the purchaser is granted in the software and the ownership rights, if any, that the purchaser has in the software.

Second, Indiana’s conclusion is in contrast to a recent Wisconsin private letter ruling that was discussed in Aprio’s September 2016 SALT Newsletter. The facts were almost identical (it is almost certain that the taxpayer is the same), but Wisconsin concluded that the premium content fees were subject to sales tax as “taxable admissions.” The sharp contrast between the two states’ interpretations further underscores the importance of consulting a SALT professional when implementing new business products and services.

Aprio’s SALT team is experienced in understanding the different positions that states may take with regard to a given transaction, thereby allowing us to fully analyze the potential SALT consequences. This ensures that our clients are fully informed about tax consequences when they make business decisions. We constantly monitor these and other important state tax issues, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the January 2017 SALT Newsletter. To view the entire newsletter, click here.

[1] Indiana Revenue Ruling #2015-15ST (Nov. 4, 2016). This ruling was released to the public on Nov. 30, 2016.

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