Funvestment Group, LLC v. Crittenden

Funvestment Group runs an amusement facility in Norcross that includes arcade games and other coin-operated amusement machines, which it leases from Tiny Towne International under an agreement to pay Tiny Towne a percentage of revenue. The Georgia Department of Revenue audited Funvestment and said it owed sales and use tax on those lease payments, arguing that a tax exemption for 'gross revenues generated from' the machines covers only money customers put into the machines to play them, not lease payments between businesses. The Georgia Tax Tribunal sided with Funvestment, a Fulton County superior court sided with the Department of Revenue, and the Court of Appeals of Georgia agreed with the Department. The Supreme Court of Georgia took up the case to settle what the exemption statute really covers. It held that the plain wording of the law exempts all revenue the machines generate, including lease income, not just coins inserted for play, and reversed the Court of Appeals.

The court held that the tax exemption in OCGA § 48-8-3 (43) for 'gross revenues generated from' bona fide coin-operated amusement machines is unambiguous and covers all revenue the machines produce, including lease payments a location owner makes to a machine owner, not just money customers insert to play the machines.

The ruling means businesses that lease coin-operated arcade and amusement machines, and the companies that own and lease those machines out, do not owe sales and use tax on the lease payments between them, potentially saving money across Georgia's amusement machine industry and affecting how the Department of Revenue audits similar businesses statewide.

Judgment of the Court of Appeals reversed

1. The court began with the text of the statute itself, following the rule that when statutory language is clear and unambiguous, interpretation begins and ends with the words the legislature used, read in their plain and ordinary meaning.
2. Using dictionary and legal definitions from around when the exemption was enacted in 1992, the court found that 'gross revenue' commonly meant the overall total income from a given source, with no built-in limit on how that income is earned.
3. The court reasoned that the phrase describing the machines (used for amusement, entertainment, or pleasure, available for public play) merely identifies which machines qualify, and does not restrict the exemption to only the coins inserted for play, so it also covers lease payments made for the right to place those machines on someone's property.
4. Applying that reading to the facts, the court found that when Funvestment pays Tiny Towne to lease the machines, that payment generates revenue for Tiny Towne from the machines just as coins inserted by customers generate revenue for Funvestment, so both types of income fall within the exemption.
5. The court addressed competing interpretive rules for tax statutes, explaining that ambiguous tax exemptions are construed narrowly against the taxpayer while ambiguous tax-imposing statutes are construed narrowly against the state, but concluded neither rule applied here because the exemption statute was not ambiguous in the first place.

• sales and use tax
• coin operated amusement machines
• arcade machine leasing
• Georgia Department of Revenue
• tax exemption