Mar 26, 2018
From KPMG TaxWatch
The Arkansas Department of Finance and Administration recently ruled that fees charged for access to a taxpayer’s self-described “rage room” were subject to sales tax as fees for the use of amusement, entertainment, or recreational facilities. The taxpayer operated a rage room—the first of its kind in Arkansas—where clients had the opportunity to break everyday items using a small sledge hammer, tennis racket, baseball bat, or by simply throwing the items. The items varied and included dishware, as well as small appliances such as toasters or microwaves. The taxpayer explained that clients came into its facility full of “bottled-up frustrations” and left “less stressed, calmer, and more relaxed.” In the taxpayer’s view, the exercise of breaking things was “very therapeutic and also very fun and light-hearted.” The taxpayer charged a fee for use of the rage room, but did not sell tangible personal property or charge if someone simply wanted to watch.
The Department stated at the outset that it had never before issued a legal opinion regarding the taxation of rage rooms. As the taxpayer did not sell tangible personal property, the key question was whether the taxpayer’s service was taxable. After reviewing websites related to rage rooms in other states, the Department concluded that these facilities were designed to “provide a place for a person to relieve frustrations through a physical activity that allowed them to destroy items in a non-threatening manner.” Under Arkansas law, sales and use tax is imposed on “fees for access to or the use of amusement, entertainment, athletic, or recreational facilities.” The terms “amusement,” “entertainment,” and “recreational,” were not defined by statute, so the Department applied their plain and ordinary meaning and concluded that the rage room activities fell within the generally accepted definitions of these terms. While the taxpayer’s position was that the activities were “therapeutic,” the Department observed that there had been no authority presented indicating that rage room activities are prescribed or recommended by heath care professionals. In the absence of medical proof, the Department determined that the therapeutic benefits of rage room activities were speculative. Therefore, the taxpayer’s fees for use of the rage room were subject to sales tax. Please stay tuned to TWIST for more information on rage rooms and other taxable amusements.
For more information about TWIST or to view archived episodes, please visit our TWIST homepage.
To receive TWIST e-mails each Monday morning, make sure that state, local and indirect is checked off as one of your topics of interest on the KPMG TaxWatch registration site.
The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.