The earliest documented coin-operated vending machine was developed by Heron of Alexandria, an engineer from first century Greece, who built a simple device to stop temple patrons from taking too much holy water. Heron's machine used a lever and a counter-weight to regulate the holy water's spout. A coin placed on the lever temporarily opened the spout--allowing the holy water to flow--until it was closed off again by the counter-weight.
In 1883, British inventor Percival Everitt received a patent in the United Kingdom for a coin-operated machine that dispensed postcards. Over the next few years, a number of similar patents were filed in the United States, and the modern coin-operated machine industry was born. Today, coin-operated machines are most commonly associated with amusement devices, such as slot machines and video games. And most U.S. states have strict regulations in place regarding the licensing and commercial use of these machines.
Vending Machine Sales Tax Dispute
The Georgia Supreme Court recently addressed a dispute arising from the application of the state's sales tax to the leasing of coin-operated amusement machines (COAMs). The case, Funvestment Group, LLC, v. Crittenden, involved the owner of an amusement facility in Norcross, Georgia, Funvestment Group, LLC. Funvestment, in turn, leased a number of COAMs from Tiny Towne International, Inc. Under the terms of the lease, Funvestment paid 10 percent of its total gross revenues (less certain deductions) to Tiny Towne.
Normally, such lease payments are subject to Georgia's statewide sales and use tax. But the law contains an exception for "gross revenues generated" by COAMs. Funvestment and Tiny Towne argued this exception covered its lease. The Georgia Department of Revenue disagreed and issued a proposed assessment against Funvestment for uncollected sales and use tax.
Funvestment first appealed this ruling to the Georgia Tax Tribunal. The Tribunal agreed with Funvestment that the COAM exception did apply to the lease. The Department of Revenue then appealed that decision.
A Fulton County, Georgia, Superior Court judge, and later the Georgia Court of Appeals, both sided with the Department. In a June 2022 decision, the Court of Appeals held the COAM exemption only covered revenue generated by patrons actually paying to use the machines. It did not cover all "gross revenues" related to the machines themselves, such as Funvestment's lease payments to the owner of the machines.
Tax Exemption Not Tied to Play
But the Georgia Supreme Court disagreed with the two lower courts and reinstated the Tax Appeal Tribunal's original decision in favor of Funvestment. Justice Shawn Ellen Lagrua, writing for a unanimous seven-judge court, said this dispute came down to the "plain language" of the COAM exemption itself. Specifically, the law exempts,
[g]ross revenues generated from all bona fide coin operated amusement machines which vend or dispense music or are operated for skill, amusement, entertainment, or pleasure which are in commercial use and are provided to the public for play which will require a permit fee...
The Court of Appeals interpreted this to mean that only the revenues generated by the operation of the machine for one of the stated uses were exempt. The Supreme Court, in contrast, said that nothing in this language limited or restricted "the manner in which COAMs generate these revenues." In other words, although the law described COAMs in terms of what they did for the consumer--e.g., playing a game or music for money--that did not limit the sales and use tax exemption to only those uses. Rather, the exemption covered revenue of any kind derived from a qualifying machine. And leasing a COAM clearly generated revenue for Tiny Towne as the owner of the machines it leased to Funvestment.
Justice Lagrua reiterated that in Georgia, courts must construe any ambiguity in a tax exemption law strictly in favor of taxation and against the taxpayer. But here, the Supreme Court saw no ambiguity. Instead, the exemption was "clear and unambiguous" in favor of Funvestment's position.
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