Amusement Device Operators: How Do Wisconsin Sales/Use and Income/Franchise Taxes Apply?

Who is the "operator" of an amusement device?

You are the "operator" of an amusement device if you have access to the device for stocking or restocking or for removing the receipts or if you, in general, have control over the device and its contents.

Do I have to pay sales and use taxes on the amusement devices that I buy?

You must pay sales or use tax when you buy taxable products that you use in your business. Following are examples of taxable purchases by amusement device operators:

• Pool tables
• Video game machines, including video gambling machines
• Dart boards
• Pinball machines
• Foosball tables
• Air hockey tables
• Shuffleboard tables
• Juke boxes
• Music for juke boxes, regardless of whether you receive them on tangible media such as a hard drive or receive them via the Internet. Exception: As of June 1, 2016, the sale of music for jukeboxes is exempt if sold to a person in the business of providing a taxable service through a jukebox if the music is used exclusively for the jukebox.

Do I have to pay sales tax on my sales from amusement devices?

If you are the operator of an amusement device, you must pay sales tax on your receipts from customers for using the device, including your receipts from all of the devices listed above. Commissions you pay to the owner of an establishment where you place a device do not reduce your amount subject to sales tax.

What amount do I have to pay income or franchise tax on?

The gross income from operating amusement devices must be reported with other income from an operator's business. Income and expenses are reported on the operator's federal and Wisconsin income or franchise tax returns. An operator of video gambling machines is entitled to deductions from income for ordinary and necessary business expenses in the same manner as other business expenses.

What are common issues found during audits?

Sales Tax Issues:

1. Poor records or lack of records to substantiate gross receipts
   1. No log book or documentation showing the amount of cash removed from the machines
   2. No receipt given to owner of establishment showing amount of commission paid or receipt does not show computation of sales tax due or commission paid (as shown in example above)
2. Sales tax incorrectly calculated using net receipts (e.g., payouts of winnings to gambling machine players are incorrectly deducted before calculating sales tax due)
3. Financial account statements show deposits of cash in excess of receipts reported on the return

Use Tax Issues:

4. Failure to pay sales or use tax on purchases of amusement devices
5. Failure to pay sales or use tax on purchases of parts or repair services for amusement devices

Income/Franchise Tax Issues:

6. Poor records or lack of records
   1. Failure to substantiate gross receipts (see sales tax issues above)
   2. Failure to substantiate commissions or rents paid to owners of establishments
   3. Failure to substantiate payouts made to video gambling machine players
7. Failure to issue Form 1099 information returns for gambling winnings, commissions, or rents paid
8. Personal expenses deducted as business expenses

Where can I find more information?

Information about the tax treatment of receipts from video gambling machines can be found on pages 4-6 of Wisconsin Tax Bulletin #140 (October 2004), and pages 14-15 of Wisconsin Tax Bulletin #146 (February 2006). In addition, refer to sec. Tax 11.52, Wis. Adm. Code, "Coin-operated vending machines and amusement devices," for more information.

You may also email us at dorbusinesstax@wisconsin.gov or call us at (608) 266-2776.

March 23, 2016