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Sales Tax Secrets: The Next Level of Video Game Taxes

  • Sep 17, 2013 | Christina Lengyel

Beginning levels of video game tax

When I was a kid, we bought a Super Nintendo, paid sales tax on that, then bought some games and paid sales tax on each of those. The physical cartridge containing a whole Super Mario World was the only part of the game with monetary value.

Intermediate levels

Fast forward to when I was a teenager working at a video game store. It was the same principal. While we sold games like Everquest, which required further subscriptions and sales once the gamer got home, we could relax as soon as the box left our door and the video game company could sort our their tax responsibilities themselves. We were aware of a debate that carries on to this day about the potential to sell exceedingly violent video games at higher rates, but that is the only notable sales tax issue I recall.

Ten years later, the game exchange is completely different and significantly less material.

Advanced levels

In order to play certain games, paid subscriptions are required. On top of that, in order to use certain consoles in an online capacity, further paid subscriptions are required. In order to download new games, add-ons, and applications, gamers pay to download. Additionally, items of strategic (and let’s be honest, sometimes just aesthetic) value can be bought and sold with real money within virtual worlds. Are tax legislators on top of these developments?

Sort of. So far, as a general rule, purchases of points that can be used to buy things inside the console are treated like gift cards for tax purposes. It’s essentially a currency exchange. Meanwhile, an initial subscription can call for sales tax.

New worlds

It’s possible that decisions like the Marketplace Fairness Act can pave a way for clear-cut tax laws regarding the sales of virtual goods, but right now, video games are the "wired west" of sales tax. Don’t worry, with new products like the Oculus Rift, you may soon find a whole lifetime not to worry about taxes in the span of your five minute break.

photo credit: Sergey Galyonkin via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Christina Lengyel
Avalara Author Christina Lengyel
Christina Lengyel is a writer by trade and has found herself in taxes by way of research. As an analyst, she has tracked down thousands of products by UPC in order to determine when and where they are taxed.