Tennessee, Online Gaming, and Sales Tax
- Nov 21, 2013 | Gail Cole
The Tennessee Department of Revenue has issued a letter ruling* on “the application of the Tennessee sales and use tax to various transactions involving online gaming and other digital content.”
It pertains to a taxpayer who makes retail sales to Tennessee customers both from stores located in Tennessee and online through its website. Customers purchase “digital content for use in an online video game that resides on a third party server” located out of state and “virtual goods….” Consumers pay to access either an online game or additional content within an online game. The taxpayer sells codes to consumers which allow them to access purchased content on the third party server.
The games or game add-ons are purchased as prewritten software and are downloaded to a consumer’s personal computer, gaming console or mobile device. Customers purchase written codes (from a store or the website) allowing them to access and download the software from the third party server.
The taxpayer also sells plastic cards containing notional dollar values, point values, or subscription time. These may “be used within online networks for game play, interaction among other players on a network, access to digital online content, or the direct download of digital content to a customer’s device.”
The Tennessee Department of Revenue determined the following:
- Sale of access codes for remotely accessed software and virtual goods are not subject to sales and use tax because no sale occurs in Tennessee.
- Sale of codes for downloadable video games and add-ons are subject to sales and use tax because “the purchase of this type of access code is equivalent to a payment for downloaded computer software.”
- The sale of notional dollar value cards and point cards are not subject to sales and use tax.
- Sales of subscription cards may or may not be subject to sales tax, depending on each card’s designated use. A card allowing remote access to non-downloadable software is not subject to sales or use tax. A card allowing a customer to download or remotely access specified digital products or download computer software is subject to sales and use tax.
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*Letter rulings are based on specific facts and circumstances at a particular point in time, “and are applicable only to the individual taxpayer being addressed.”