The Petitioner’s Business
As we approach the holiday season in New York, many New Yorkers and tourists are attending a variety of interactive activities. Whether it's catching a Broadway show in the Theater District or a Knicks game at the Garden or checking out the new exhibits at the Museum of Modern Art, New York amusement is rather endless. Which makes us wonder – does sales tax apply to admissions into New York escape and mystery rooms?
Recently, the New York State Department of Taxation and Finance has published several sales tax advisory opinions in response to questions asked by New York businesses. One such recently published Advisory Opinion TSB-A-24(36)S. involved a business engaged in "mystery rooms" or "escape rooms." Within these rooms, groups are locked to solve mental exercises, puzzles, and riddles to unravel a mystery or escape the room.
There is no fee to enter the premises, but customers are charged to enter a mystery room. A professional theater set designer designs the mystery rooms. Each room is supervised by an employee who is involved in the mission and sometimes assists participants. The missions are advertised as fun and challenging group activities with a team-building component to attract businesses looking to foster camaraderie.
The DTF’s Analysis
Under New York Tax Law § 1105(f)(1), sales tax is imposed on admission charges to any place of amusement within the state. A "place of amusement" is broadly defined under Tax Law § 1101(d)(10) to include any facility where entertainment, amusement, or recreational activities are provided. An "admission charge," as defined in Tax Law § 1101(d)(2), encompasses any amount paid for admission to a place of amusement, including service charges and charges for the use of facilities for entertainment or amusement.
The Petitioner contends that its charges for admission to the mystery rooms should be exempt from sales tax on several grounds. Firstly, it suggests that the business provides a live dramatic or musical arts presentation based on the in-character participation of their employee who supervises the mystery rooms and occasionally enters the room in character to assist participants.
Secondly, the Petitioner argues that their patrons are active participants in the mystery rooms; since customers actively solve puzzles and unravel mysteries, the activity should be exempt from sales tax.
Thirdly, the Petitioner provides that the primary purpose of the mystery rooms is educational and for team-building rather than mere amusement, emphasizing that the activities foster teamwork, problem-solving, and group communication skills.
Despite these contentions, the DTF disagreed. Regarding the claim of providing a live dramatic or musical arts presentation, the Department concluded that the employee’s interactions do not transform the amusement activity into an exempt dramatic or musical arts performance. According to 20 NYCRR 527.10(d)(2) Example 5, similar attractions with thematic elements and employee participation remain considered amusement places. In Matter of Doherty d/b/a Eerie Productions, DTA No. 826909 (Tax Appeals Tribunal, May 29, 2019), the presence of actors supported the determination that a haunted attraction was a place of amusement subject to sales tax.
Concerning the argument about patrons' active participation, the Department noted that the exclusion for participating patrons applies only to admissions to sporting activities involving physical participation. Since the Petitioner concedes that its mystery rooms do not include physical activity, they are not eligible for exemption.
Addressing the educational and team-building aspects, the Department acknowledged that while the mystery rooms may have educational or team-building components, that is not their primary purpose. The primary purpose of the activity determines its taxability. The mystery rooms are designed to amuse and entertain participants, fitting squarely within the definition of a place of amusement as intended by the statute.
Furthermore, the Department clarified that the mystery rooms are not considered "networking activities" whose primary function is to facilitate dating or making business contacts, as outlined in TSB-A-02(58)S. Therefore, that exemption does not apply to the Petitioner’s operations.
Contact a Tax Professional For Assistance
Understanding whether your business offerings are subject to New York sales tax can be nuanced. Since taxation mistakes can lead to costly fines and penalties, it’s best to avoid errors altogether. That’s where a knowledgeable New York sales tax professional comes in handy. They can help you understand whether your property and services are exempt from sales and use tax or help you plan accordingly if they are not. Don’t put your business at risk. Contact a New York tax professional to ensure your company complies with tax law.
Below, please find the full advisory opinion for your reference:
Advisory Opinion: TSB-A-24(36)S
Sales Tax
August 20, 2024
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