Rev. Rul. 57-395

Advice has been requested concerning the applicability of the occupational tax on coin-operated devices, imposed by section 4461 of the Internal Revenue Code of 1954, and the taxes on wagering, imposed by sections 4401 and 4411 of the Code, to the maintenance for use of a coin-operated shuffle-alley bowling game.

The game is operated by the insertion of a coin which sets up ten pins in a manner simulating a bowling game. Players participating propel disks or pucks by hand over the playing surface of the device in order to attain scores similar to those attained in a regular game of bowling. At the conclusion of a game, the device shows the score attained. Some persons maintaining such a device for use give to each player operating the device a chance to win a prize through the medium of a free punch on a punchboard, while others give such free chances only to players who attain a predetermined substantial score. Under no circumstances are chances on the punchboard sold. Each player inserts the same amount to operate the bowling game regardless of whether he takes the free chance to which he may be entitled. The coin inserted is of the same denomination as that required for the operation of similar devices maintained by other persons without the punchboard feature.

Section 4461 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 ten dollars per year with respect to each amusement device and $250 per year with respect to each gaming device.

Section 4462(a)(1) of the Code provides that a coin-operated amusement device means any amusement or music machine operated by the insertion of a coin, token, or similar object. Section 4462(a)(2) of the Code provides that a coin-operated gaming device means so-called `slot' machines which operate by the insertion of a coin, token, or similar object and which, by application of the element of chance, may deliver or entitle the person playing or operating the machine to receive cash, premiums, merchandise, or tokens.

The determination of whether a coin-operated device is an amusement or gaming device cannot be made solely on the fact that prizes are awarded in connection with its operation. If the successful operation of a coin-operated device, with respect to which prizes are awarded, depends on the application of the element of chance, the machine is considered a gaming device. Generally, with respect to this type of device, the player after inserting the coin in the machine has no further control over the final result, which is attained by the element of chance, such as pulling a lever, setting reels into action, activity of dice, or, in the case of `pin-ball' machines, propelling a ball over the playing surface by means of a plunger.

On the other hand, where the insertion of a coin merely releases the machine for maual play and the successful operation thereof depends entirely on the skill of the player in operating the device, such as the propelling of pucks, the machine is considered an amusement device even though prizes may be awarded to some or all of the players. However, where a device of this type includes a feature whereby its successful operation, for which prizes are awarded, depends on the element of chance, it is considered a coin-operated gaming device.

It is held that since, in the instant case, the successful operation of the coin-operated shuffle-alley bowling game depends entirely on the skill of the player, it is considered a coin-operated amusement device taxable at the rate of ten dollars a year even though players operating the device may receive a free chance to win a prize.

It is further held, however, that where a coin-operated bowling game includes a feature whereby its successful operation, for which a prize is given, depends on the element of chance, the game is considered a coin-operated gaming device taxable at the rate of $250 a year. An example of a coin-operated bowling game which would fall within this classification is one where a player is awarded a prize in the event the last digit in his score matches a digit which is illuminated on the device after the game is completed.

Under the circumstances of the instant case as set out above, it is not deemed that a wager is placed and therefore no wagering tax liability under sections 4401 and 4411 of the Code is incurred.

In some circumstances a coin-operated device may be coupled with a punchboard or similar lottery operation in such a fashion that it is in reality the operation of a lottery within the meaning of section 4401 of the Code. Such would be the case where there is not a bona fide operation of the coin-operated device as such, i.e. , where the device is employed with a punchboard or similar lottery as a sham to evade the wagering tax. Thus, where depositing a coin in the slot of the device is tantamount to depositing a coin in a cash register , that is, where the customers do not operate the device after inserting the coin, or operate it in a cursory manner merely to clear the machine for the insertion of the next coin, the amount deposited in the device would constitute payment for a chance in a lottery. Under such circumstances the wagering tax would be applicable to the full amount realized from the device and the tax on coin-operated devices would not be asserted.

Whether in any particular case liability is incurred for the amusement device tax or the gaming device tax under section 4461 of the Code, or for the wagering taxes under sections 4401 and 4411 of the Code, will be determined upon examination of the facts of the particular case.