Restaurant Point-of-Service Tablets: How Do States Tax Them?

Mobile point-of-service (POS) tablets, popular at casual, full-service restaurants, are being addressed by states in their sales and use tax laws. Many states now have guidance on how and whether tax applies to:

  • the POS tablets themselves; and
  • content sold to diners on the tablets.

How are Tablets Used by Restaurants?

If you dine out, you’ve probably seen or used them—tablets that allow customers to order and pay from their tables. Often, you can buy games to play or videos to watch while you wait for your food.

These tablets are also called “mobile point of service devices.”

Usually, restaurants lease them from third-party vendors. The vendor retains title to the device. The vendor receives monthly fees and, sometimes, commissions for the device rental.

Games, news, trivia, etc. sold on the tablets are often called “premium content.” Diners usually pay a flat fee to use these services while they eat.

Why are Tablets Such a Hit in Restaurants?

Diners love these tablets because they allow them to order and pay when they want.

Restaurants like them because:

  • They speed up service and help table turnover.
  • Diners tend to order dessert more often.
  • Those $1.99 games add to the bottom line.
  • Tips generally have not decreased. Servers also like these tablets.

POS tablets at full-service restaurants are here to stay.

Do States Tax Tablet Lease Fees?

States that have addressed the issue generally impose sales tax on the lease or rental of the device.

Oklahoma Taxes the Lease

Oklahoma taxes monthly service charges and commissions on the tablets as the rental of tangible personal property. The vendor of the tablet also has to:

  • get an Oklahoma sales tax permit; and
  • report and pay the tax.

Other states impose sales tax on the tablet rental, including:

  • Indiana,
  • Tennessee,
  • Rhode Island,
  • Connecticut,
  • Utah, and
  • South Carolina.

Missouri is an Exception

Missouri is different on this issue. If a vendor pays sales tax when it purchases a tablet, it may lease it to restaurants without collecting tax on the lease stream. If tax was not paid when the tablet was purchased, the lease payments would be taxed.

 How Are Games and Videos Taxed?

While most states tax tablet leases, whether and how premium content fees are taxed varies by state.

Some States Tax Premium Content Fees

  • In Connecticut, these fees are computer and data processing services subject to tax.
  • In New Mexico, such fees are receipts from the sale of a license to use the content and subject to gross receipts tax.
  • Tennessee and Rhode Island also tax premium content fees.

Other States Do Not Tax Premium Content Fees

  • In Missouri, the fees are not taxed because they are not an enumerated service.
  • South Carolina does not tax these fees because tangible personal property is not sold, and the fee is not a charge for communications.
  • In Indiana, the fee is not taxed because a service was being provided, and property was not being transferred.
  • Oklahoma and Utah also do not tax premium content fees.

By Emily Baugh, J.D., LL.M.

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CCHTaxGroup

All stories by: CCHTaxGroup