Rev. Rul. 54-319

Advice is requested concerning liability for the special tax imposed by section 3267 of the Internal Revenue Code with respect to the maintenance for use of coin-operated amusement and gaming devices. In the instant case, the owner of the devices places them for a particular period on premises occupied by another person, after which the owner of the machines removes them and places them on premises occupied by other persons. In each case the person occupying the premises on which the machines are placed is paid a certain percentage of the profits derived therefrom. The owner of the machines desires to have the special tax stamps recorded in his own name and, subsequently, have them transferred to other locations along with the machines.

Section 3267 (a) of the Code provides that every person who maintains for use or permits the use of, on any place or premises occupied by him, a coin-operated amusement or gaming device, shall pay a special tax of $10 per year with respect to each amusement device and $250 per year with respect to each gaming device.

Under the provisions of section 3267(c) of the Code, an operator of a place or premises who maintains for use or permits the use of a coin-operated device is considered, for the purpose of the tax, to be engaged in a trade or business in respect to each such device.

In view of the foregoing, liability for the special tax is incurred by the person who maintains for use or permits the use of the coin-operated devices on his place or premises and special tax stamps must be recorded in the name of such person. The owner of the devices who places them on the premises of other persons is not liable for the special tax and special tax stamps may not be recorded in his name. The basis upon which payment is made to a person who maintains devices on his premises is immaterial in the determination of liability for the tax.

In determining the amount of tax involved, section 323.22 of Regulations 59 provides that the amount of tax liability is computed on the basis of the number of devices of each particular type maintained for use, or permitted to be used on his premises, by the taxpayer. For each additional device subsequently during the same period brought on to the premises for use, additional tax liability is incurred. Tax liability applies with respect to a device installed on the taxpayer's premises even though previously used on the premises of another person, and even though special tax for the same year or period or part thereof was paid by such other person with respect thereto.

Section 323.22 also provides that if a taxpayer replaces a device with respect to which he has paid special tax with a like device, no additional tax is payable. For example, a cigar store proprietor who maintains on the premises two "pin-ball" machines with respect to which he has paid special tax, has these two machines removed and replaces them with two "pin-ball" machines of a more modern design, no additional special tax is payable. However, if the replacing article is placed in operation before operation of the replaced article is discontinued, additional tax liability is incurred. If "pin-ball" machines are replaced by coin-operated gaming devices, or gaming devices are replaced by "pin-ball" machines, liability for special tax at the rate applicable to the replacing machines or devices is incurred, and no credit is allowable for the special tax paid with respect to the replaced machines or devices.