This Halloween season, there is one thing escape room enthusiasts cannot escape – sales tax. The New York Department of Taxation and Finance (Department) recently released an Advisory Opinion regarding charges for admission to “mystery” or “escape” rooms, deeming the charges taxable.
“Nor is it a “networking activity,” the primary function of which is to facilitate dating or making business
contacts.”
Trapped in Tax
An escape room is an immersive game in which a team works together to find clues, solve puzzles or codes, and uncover a mystery in order to “escape” from the room in a certain amount of time. In recent years, escape rooms have gained popularity and become a challenging, yet rewarding, activity for children, adults, and even businesses looking to foster communication and team building between employees.
In this case, the Petitioner is a company located in New York City operating escape rooms where groups of up to 10 people are “locked in a room” and tasked with solving “mental exercises, puzzles and riddles with the aim of unraveling a mystery.” The rooms themselves are designed by a professional theater set designer and supervised by an employee who oversees the mission and can help participants if needed. Each mission is driven by a particular storyline chosen by the participants beforehand.
In Petitioner’s case, there is no fee charged for general “admission” into the building. However, there is a fee charged to enter the escape room and complete the mission. Because New York tax law imposes sales tax on certain admissions charges, Petitioner contacted the Department seeking an Advisory Opinion as to whether its charges for the interactive game were subject to New York state and local sales tax.
Pay to Play
In New York, sales tax is imposed on “any admission charge . . . to or for the use of any place of amusement in the state.” An “admission charge” is broadly defined to include the amount paid for admission, any service charge, any charge for entertainment or amusement, and any charge for use of facilities. The law further defines a place of amusement as “any place where any facilities for entertainment, amusement, or sports are provided.”
Given these broad definitions, the Department ruled that Petitioner’s escape rooms are places of amusement used for entertainment purposes. To support this statement, the Department references the common understanding of the term “amusement,” which includes a “pleasurable occupation of the senses.” Since the purpose of the escape rooms is to provide “mentally stimulating entertainment,” the Department determined that they fall under the definition of amusement.
Held Captive
In its request for an Advisory Opinion, Petitioner presented several arguments as to why the charges should be exempt from tax. The previously mentioned New York tax law that imposes tax on admission charges also has an exemption for live dramatic or musical art performances, and sporting activities if the patron is an active participant in the activity.
Initially, Petitioner argued that the interactive nature of the escape rooms, where employees engage with the participants “in-character” while facilitating the escape room missions, qualifies it for the exemption for live dramatic or musical art performances. However, the Department rejected this argument, stating that the employees’ interactions do not “transform” the escape rooms into live dramatic or musical art performances.
Next, Petitioner argued that the patrons are active participants in the activity and thus the charges should be exempt from tax. Undaunted, the Department emphasized that the exclusion is only for sporting activities, and escape rooms do not involve any physical activity that would be considered a sporting activity.
Case Closed
In the end, the Department concluded that Petitioner charges its customers for entry into the escape rooms and the use of its facilities for amusement purposes. As such, the charges are considered a taxable admission under New York law.
This ruling highlights the importance of facing your fears and understanding the taxability of your company’s goods or services. At Libertas, we take the guesswork out of taxability determinations, so you are not spooked by an unexpected decision!