New York: Charges Incurred Through Tableside Tablet Content Are Now Taxable
By: Aspen Fairchild, SALT Associate
At a glance:
- The main takeaway: Tableside mobile tablets have become a mainstay at many restaurants across the U.S., but there is confusion around how charges for using them should be taxed.
- Impact on your business: This ruling is just an example of a broader reminder that businesses need to analyze the sales tax consequences of adding additional fees to an invoice.
- Next steps: Work with Aprio’s State and Local Tax (SALT) team to understand your business’s sales tax obligations related to additional fees and charges.
The full story:
Over the past few years, mobile tablets have taken a seat at restaurant tables nationwide, offering an interactive ordering and entertainment experience with a side of new sales tax uncertainty.
Restaurants that offer these tablets must address the following question: Does charging a separate fee for premium entertainment content, such as games or music, require the collection and remittance of sales tax?
Before we dive into the case in question, it’s important to remember: any time your business wants to add additional fees or charges (e.g., handling, credit card processing, etc.), it is important to analyze and understand whether you need to collect sales and use tax on those charges.
The topic is complex
To help restaurants address extra charges related to tablet usage, various states have responded to formal ruling requests. In 2016, Wisconsin ruled that these premium charges are subject to sales tax, while an Indiana revenue ruling the same year concluded otherwise. A few months later, Massachusetts published a letter ruling on the same issue, aligning with Wisconsin’s “taxable” conclusion. Now, New York is the latest state to make its case on the subject in a recently issued Advisory Opinion.
The taxpayer in question is a large casual dining company that contracts with a third party to provide mobile point of sale devices for use in the taxpayer’s New York restaurants as well as other locations nationwide. For no charge, customers can use the devices to browse the restaurant’s menu, order food, settle their bill and respond to customer satisfaction surveys. For an additional fee, customers can also access premium content on the devices, such as games, news, sports and music. This fee is a separate line item on the customer’s final tab and is collected by the taxpayer. The vendor retains title to the devices, and it charges the taxpayer for their use based either on (i) a flat monthly fee plus a percentage of the premium fees raised, or (ii) a capped amount of the premium revenue earned per month with any excess shared between the parties.
Two issues are addressed in the ruling request: first, it addresses whether the charge by the vendor to the taxpayer for use of the devices is subject to sales tax. The New York State Department of Taxation and Finance (Department) deemed this a taxable sale under state law since a “retail sale” includes “any transfer of title or possession . . . rental, lease or license to use or consume . . .” tangible personal property for consideration. Regardless of the payment option, the Department viewed the transaction as a license to possess and use the device that is subject to sales tax.
The second issue concerns the fee charged by the taxpayer when the customer accesses premium content on the devices. Under state law, sales tax is imposed on the receipts from every food and drink sale made within the state. Included in those “receipts” is “any cover, minimum, entertainment or other charge made to patrons.” Thus, the Department concluded that the fees charged to customers for premium content accessed on the devices and included on their food and beverage bill are a taxable “other charge.”
The bottom line
Any time a business adds fees or other charges to its invoices for taxable goods and services — even if they’re separately stated — it should give special attention to the potential sales and use tax consequences of those fees. In each of the state rulings mentioned in this article, not only did states reach different conclusions, but the three states (Wisconsin, Massachusetts and New York) that concluded the premium content fee is taxable did so for different reasons.
Aprio’s SALT team has experience assisting businesses with understanding the taxability of their goods and services, as well as any ancillary charges that they may impose on those invoices. We can help ensure that you are complying with your sales tax obligations and that you do not incur unexpected liabilities and penalties.
We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.
 For our article on Wisconsin’s Private Letter Ruling W1618001 (February 11, 2016) on the sales taxability of mobile point of sale devices used within the state, see our September 2016 SALT Newsletter. For our article on Indiana’s Revenue Ruling #2015-15ST (November 4, 2016) on the sales taxability of mobile point of sale devices used within the state, see our January 2017 SALT Newsletter.
 Massachusetts Letter Ruling 17-1 (March 23, 2017).
 State of New York Advisory Opinion TSB-A-20(40)S (October 20, 2020).
 See N.Y. Tax Law §§ 1101(b)(4), (b)(5), and 1105(a).
 See N.Y. Tax Law § 1105(d)(i).
Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.