NASHVILLE -- Tennessee is among a dozen or so states that have enacted laws taxing purchases of digital goods. Not long after the digital jukebox arrived on the scene in 1999, Tennessee amended its sales tax code to include digital products sold with either permanent ownership rights or passing use. As a result, the leading digital jukebox music supplier, TouchTunes, has been paying a 9.25% tax on gross receipts generated in the state by its network. The tax was also applied to operators' 20% subscription fee.
This tax can add up to considerable amounts for TouchTunes and its operators. But not any more, thanks to a two-year effort by the Tennessee Coin Machine Association and TCMA members Gary (pictured above) and Jim Brewer of Brewer Amusements LLC (McMinnville, TN), who convinced lawmakers that an existing state law prohibits levying a sales tax on jukeboxes because the equipment is already taxed by the collection of licensing fees.
The Coin-Operated Amusement Machine Tax Act, drafted by Gary Brewer and passed by the state Legislature in 2002, reformed the manner in which coin-op equipment is taxed. Rather than taxing cashbox receipts, the law requires operators to pay an annual master license tax, determined by the number of pieces they own and operate. Vendors also pay a $10 sticker fee for each machine in operation.
The Tennessee Department of Revenue agreed with TCMA and backed its position by writing: "The Act (Coin-Operated Amusement Machine Tax Act) expressly prohibits receipts from bona fide coin-operated amusement machines to be the basis of sales and use tax under the Retailers Sales Tax Act ... Under the Act, the imposition of the sales and use tax is prohibited when the sales price of digital music products loaded into a digital jukebox is based on a percentage of the gross receipts derived from the digital jukebox."
As a result, and effective immediately, Tennessee's sales tax on jukeboxes has been removed and will not be applied, starting with the next collection period.
Gary Brewer, a past-president of the Amusement and Music Operators Association, said this recent legislative experience reminded him of the importance of a state association's involvement with government. "If you're not proactive, you could be legislated out of business while you're sleeping," he told VT, "because it's not uncommon for laws to be hastily passed as late as 10 p.m. or 11 p.m. at end of a session."