Internal Revenue Service
Revenue Ruling
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smRev. Rul. 78-66
1978-1 C.B. 363
Section 4461 -- Harbor Maintenance Tax
IRS Headnote
Coin-operated gaming devices; dice games and electronic video card game. A coin-operated electronic video machine programmed to play the card game "twenty-one" and to calculate and keep account of each player's winnings and losses, but that does not award cash, premiums, merchandise or tokens, and a coin-operated machine designed for two players to compete for a favorable throw of the dice, are coin-operated gaming devices for purposes of the occupational tax under section 4461(a) of the Code.
Full Text
Rev. Rul. 78-66
Advice has been requested whether the machines described below are coin-operated gaming devices for purposes of the occupational tax imposed by section 4461(a) of the Internal Revenue Code of 1954.
(1) This machine is an electronic video device consisting of a television output, a keyboard input, and a computer programmed to play the game of "twenty-one." It will accommodate from one to four players. All the action is a video screen portrayal. Upon the insertion of a coin, the machine will display the rules of the game, and then act as the dealer. It randomly "shuffles the playing cards" and "asks" each player to "bet" one of three amounts available. The players enter their bets via the keyboard.
The machine "deals" the cards to the players and asks the players in turn whether they will stand or draw additional cards. Each player may draw until the total exceeds a count of 21 or the player elects to stand. Players enter their choice, via the keyboard, to either stand or draw. The machine will then show the dealer's hole card and will draw if the dealer's total is less than a count of 17, and stand on a count of 17 or more. The machine then calculates each player's winnings or losses. After dealing eight hands, the machine shuts off. The machine keeps account of each player's winnings or losses but does not reward players with cash, premiums, merchandise, or tokens.
(2) This machine is operated by the insertion of a coin and is designed to be played by two persons, although one person can play. The machine has two coin chutes, one at each end of the playing surface. Imprinted on one end of the playing surface are individual numbers under seven (two through six), while at the opposite end of the playing surface there are imprinted numbers over seven (eight through twelve). On each end below the playing surface is a visible small round disk that rotates by means of an electrical motor. Each disk holds one dice.
To play the machine, a coin is inserted at each end of the playing surface. A handle is pushed and the motor is energized, thereby spinning the two disks holding the dice. This motion shakes the dice which come to rest at random when the disks stop. If the sum of the dice is less than seven, the player at the lower numbered (under seven) end of the playing surface wins the game. If the sum of the dice is more than seven, the player at the other end of the playing surface wins the game. If the sum of the dice is exactly seven, neither player wins.
Section 4461(a) of the Code imposes a special tax to be paid by every person who maintains for use or permits the use of, on any place or premises occupied by such person, a coin-operated gaming device as defined in section 4462.
As defined in section 4462(a)(1) of the Code, a "coin-operated gaming device" includes a so-called "slot" machine that operates by means of the insertion of a coin, token, or similar object and which, by application of the element of chance, may deliver, or entitle the person playing or operating the machine to receive, cash, premiums, merchandise, or tokens. Section 4462(b) provides that the term coin-operated gaming device does not include a bona fide vending or amusement machine in which gaming features are not incorporated.
Section 45.4462-1(a)(2)(i) of the Miscellaneous Stamp Tax Regulations provides that a coin-operated gaming device includes a machine that, even though it does not dispense cash or tokens, has the features and characteristics of a gaming device whether or not evidence exists as to actual payoffs.
Rev. Rul. 59-294, 1959-2 C.B. 340, holds that certain pinball machines are gaming devices because of the features, characteristics, and functioning of the devices, notwithstanding the fact that evidence of actual payoffs or redemption of free plays has not been obtained. That conclusion is based on the rationale that when a coin-operated device is peculiarly adapted to use for gaming purposes, it is a coin-operated gaming device even though it may be recommended or advertised as being for use for amusement purposes only.
In Nine Gambling Devices v. United States, Civil No. 2415 (S.D. Ill., Dec. 13, 1957), the United States District Court for the Southern District of Illinois held that the question of whether a particular coin-operated device is an amusement or a gaming device is to be determined from the features, characteristics, and functioning of the device. When it is peculiarly adaptable to use for gambling purposes and has been intentionally so manufactured, it is a coin-operated gaming device, and any person who maintains it for use or permits its use on such person's premises is required to register it as a coin-operated gaming device and pay the $250 special tax. The court further stated that this is true notwithstanding the fact that the device may bear on its face the words "For Amusement Purposes Only" and notwithstanding the fact that the evidence fails to disclose the actual use of such device for gambling purposes. See Rev. Rul. 72-566, 1972-2 C.B. 583, in which it is concluded that a certain coin-operated electrical machine affording a player a chance to obtain a winning poker hand has inherent characteristics indicating that it is peculiarly adaptable to use for gambling purposes.
The machine in (1) above is designed and constructed to play a game of chance, that simulates an actual card game, and to calculate and keep account of each player's winnings or losses. Thus, the machine has features and characteristics that indicate that it is peculiarly adapted to use for gambling purposes. The use of the dice in (2) above indicates that the machine operates by application of the element of chance that makes it peculiarly adaptable to use for gambling purposes.
Therefore, the machines described in (1) and (2) above are coin-operated gaming devices within the meaning of section 4462(a)(1) of the Code. Accordingly, the tax imposed by section 4461(a) is to be paid by every person who maintains for use or permits the use of such gaming devices on any place or premises occupied by such person.