Rev. Rul. 68-257

Advice has been requested concerning the person liable, under the circumstances described below, for the special tax on coin-operated gaming devices imposed by section 4461 of the Internal Revenue Code of 1954.

The proprietor of a business establishment and the owner of a coin-operated gaming device entered into a written agreement, referred to therein as a "lease," under which the proprietor of the establishment agreed, in return for certain consideration, that the gaming device might be maintained for use on the premises occupied by the proprietor of the establishment. The proprietor of the business establishment agreed to "lease" to the owner of the gaming device sufficient space, for example three feet by six feet, for the maintenance of the gaming device. The location of this space within the business premises was not specified in the agreement, and the space was to be in no way enclosed or physically separated from the business premises. The proprietor of the establishment retained the same possessory rights in the space occupied by the device as he had in the remainder of the business premises.

Section 4461 of the Code imposes a special annual tax to be paid by every person who maintains for use or permits the use of, on any place or premises occupied by him, a coin-operated gaming device.

The question presented is whether the agreement described actually constitutes a lease so that the owner of the gaming device, having sole possessory right to the premises on which the machines are located, becomes the "occupant" of the premises within the meaning of section 4461 of the Code, and, therefore, is liable for the tax on coin-operated gaming devices imposed by that section.

The term "place or premises," as used in section 4461 of the Code, contemplates a definite area having limits or bounds within the confines of which the lessee of the area may exercise his right of occupancy.

In the instant case, the area "leased" by the owner of the gaming device has no specific bounds or limits, and is physically a part of the premises occupied by the "lessor." It is merely an unspecified area within a "place or premises," rather than a "place or premises" in itself. Notwithstanding the fact that the agreement under which the "lessee" is granted his limited right of use is termed a "lease," by reason of the restricted right of use which it conveys, it is more in the nature of a license (permitting a licensee to maintain a gaming device in the premises occupied by the licensor) than a true lease.

In view of the foregoing, the proprietor of the business establishment in question is the "occupant" of a place or premises on which he permits the use of a coin-operated gaming device, within the meaning of section 4461 of the Code. Accordingly, the proprietor of the establishment is liable for the special tax imposed under section 4461 of the Code, and the special tax stamp must be recorded in the name of such person and not in the name of the owner of the gaming device.