In the February 2011 issue of New York Tax Insights, we reported on the decision of a New York State Administrative Law Judge holding that per-bird fees paid by hunters to shoot birds at a game preserve are subject to sales tax as charges for the sale of tangible personal property. Now, the New York State Tax Appeals Tribunal has reversed, in a detailed analysis holding that the charges for releasing the birds were part of a nontaxable “admission charge,” and rejecting the Department’s very narrow interpretation of the term as an improper attempt to divide inseparable charges. Matter of Frank M. Gugliotta D/B/A Parkview Lodge and Upland Game Preserve, DTA No. 823157 (N.Y.S. Tax App. Trib., Aug. 18, 2011).

The facts in the case were undisputed: the petitioner operates the Parkview Lodge and Upland Game Preserve (the “Preserve”), and offers hunting of pheasant, chukar and quail. Before a hunt begins, hunters must direct the Preserve to release a specified number of birds, and then the hunters have a set period of time to shoot the birds that were released at their request, as well as any other birds that were missed by earlier hunters, or that may have happened to fly by. Pricing is based solely on the number of birds the hunters want released, with some set minimums, and varies depending upon the type of bird. There is no guarantee that the hunter will kill all, or even any, of the birds paid for, since the birds may escape or the hunter may simply not be skillful enough, and there is no change in the charge depending upon the number of birds actually shot. Following the hunt, most hunters clean their own birds in an area provided by the Preserve, although some use a bird-cleaning service provided by the Preserve for a separate charge, or a taxidermy service also available at an extra charge. Hunters often eat their birds. No license is required to hunt game birds on the Preserve, and hunting is not limited to the regular New York State hunting seasons.

Over the years from 1965 to 1991, the Department had provided advice to other hunting preserves, stating that the provision of game birds at a charge by bird on a private shooting preserve is not subject to sales tax. However, upon audit of the Preserve, the Department concluded that the per-bird charges were taxable as sales of tangible personal property.

The ALJ Decision. The ALJ agreed with the Department, holding that the charges were for the sale of tangible personal property for use in conjunction with a participatory sporting activity.

Although hunters received both game birds and the right to hunt, since the Preserve chose to charge only for the birds, the ALJ considered the charges to be sales of tangible personal property in their entirety. Even if they were deemed to include an amount allocable to the nontaxable activity of hunting, they would still be fully taxable as a single charge with both taxable and nontaxable components that are not separately broken out, leaving the entire charge subject to tax. The ALJ also rejected the argument that the birds were nontaxable “food sold for human consumption,” finding that they were sold as prey under conditions where the success of the hunt was not guaranteed. However, the ALJ did set aside the penalty, finding that the Preserve reasonably relied on the prior written advice from the Department to others operating similar businesses.

The Tribunal Reverses. The Tribunal began its analysis by examining the substance and circumstances of the transactions, and rejected as lacking factual support the Department’s position that “‘[t]he issue here is, simply, what is being sold. The answer is birds.’” Instead, the Tribunal found that hunters do not purchase birds; rather, they purchase game bird hunts. The Tribunal construed the service of releasing birds as part of the admission charge to participate in the sport of bird hunting, and found that the release of the birds was “‘inseparably connected’” to the business of providing game bird hunts, and that it therefore qualified as a nontaxable admission charge under Tax Law § 1101(d)(2), which specifically includes “any service charge” and any charge “for the use of facilities.” It noted that the Department’s position defines “admission charge” too narrowly, by trying to divide up service and use charges that together form the activity to which the patron seeks admission, and rejected that narrow interpretation as unreasonable.

The Tribunal was very clear in rejecting the attempt made by the Department to separate out different components of the Preserve’s fees, finding that the Department was seeking to “change and restrict the term admission fee by segregating core components that are properly included in a single fee.” It found that the Department’s interpretation would “nullify” the exemption provided for admission charges to sporting activities in which the patron is a participant. It differentiated the facts from cases where the provider does act as a vendor for goods and services separate from offering participation in a sporting activity, such as the rental of bowling shoes at a bowling alley, an example on which the ALJ had relied, or the rental of lockers at a skiing venue. In those cases, the taxable elements are readily severable from the nontaxable charge for participating in the sporting activity.

Here, the Preserve’s charges to release birds did not guarantee the possession of those birds, or any other rights beyond the release, which was necessary to enable the hunt. There was no separate and independent transfer of possession, but only provision of an element necessary to participate in the sporting activity. The Tribunal found that the Department’s theory would permit the disaggregation of service and use charges that only together form the activity sought by the patron, and could lead to such improper results as imposing sales tax on an admission charge to a swimming pool on the theory that it consisted of an entry fee to the property and a separate license to use the water to swim, or on per-game fees at a bowling alley by construing them as a combined charge for the rental of the lane and a separate license to use the pins for bowling.

Additional Insights. The Tribunal nowhere uses the phrase “primary function” to describe what it is looking for in characterizing the goals of patrons in paying their per-bird charges. However, the analysis in which it engages is very similar to that seen in cases that do use such or similar concepts, in which ALJs and the Tribunal have looked at the whole picture of what a customer is purchasing, rather than separate, disaggregated parts, to determine whether the transaction is subject to sales tax. For example, in Matter of SSOV ’81 Ltd., DTA Nos. 810966 & 810967 (N.Y.S. Tax App. Trib., Jan. 19, 1995), the Tribunal held that a business was primarily providing a dating service, so that the furnishing of member profile print-outs containing information on potential dates was not a separately taxable information service. Similarly, in Matter of Nerac, Inc., DTA Nos. 822568 & 822651 (N.Y.S. Div. of Tax App., July 15, 2010), an ALJ held, albeit in a nonprecedential decision, that the furnishing of written research reports was not a separate taxable information service, but rather only a component of a nontaxable consulting service, and that customers were primarily paying for solutions or advice in response to specific problems and questions, and not merely for information. Looked at in this light, the decision is another rejection of the effort sometimes made by the Department to try to assess tax by separately focusing only on small pieces of a transaction, rather than on what the customers are ultimately seeking.