SALT Report 2216 – The Appeals Division of the Washington Department of Revenue issued a ruling regarding the application of sales and use tax to a mobile video arcade service. In this case, the Taxpayer is appealing a previous audit decision that determined that its mobile video arcade service is an amusement and recreation activity that requires the Taxpayer to pay retail B&O tax and collect retail sales tax under WAC 458-20-183.
Under WAC 458-20-183, the language that differentiates an amusement and recreation service from a non-retail entertainment service is “the sale of, or charge made for, providing facilities where a person is merely a spectator, such as movies, concerts, sporting events and the like.” Based on that rule, the Appeals Division stated that they must determine whether the Taxpayer’s customers take an “active role” when playing video games.
Ultimately, they found that the activity the Taxpayer provides, the playing of video games, is not a spectator event because the participant does not sit passively watching the game console. Rather, the participant must manipulate the game console to operate the game; and there can be no game unless the participant takes that action. For that reason, the Appeals Division concluded that the playing of video games is an “amusement and recreation service” that is subject to the retailing B&O tax.
Additionally, the Appeals Division stated that consistent with a previous decision, sales and use tax applies to the purchase of equipment used to provide amusement services under RCW 82.12.020. Therefore, the Taxpayer must collect retail sales tax on its services and is not entitled to a refund of the sales and use tax it paid on the arcade game hardware and software.
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