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Real Sales Tax on Virtual Reality

  • Dec 21, 2016 | Laura McCamy

Updated 6.7.2019

The hottest new product for gamers this Christmas is virtual reality gear. Breakthrough technology is bringing VR into the mainstream. This means that states now have one more high tech gadget to figure out how to tax. So when you create a new you in IMVU, sales tax on virtual reality is one aspect of the real world you won’t be able to leave behind.

Sales Tax on Virtual Reality Headsets

A headset is the first thing you need in order to immerse yourself in a 3D world that feels so real you could touch it. Virtual reality equipment has made big technical advances, which is why it has burst onto the gamer scene in a big way.

Headsets are hardware, which is taxable tangible personal property. States are good at figuring out how to tax tangible goods. So expect to pay sales tax on virtual reality gear if you live in a sales tax state, from the Oculus hand controller set to the Sony PlayStation VR to the many other brands of virtual reality headsets currently on the market.

Sales Tax on Virtual Reality Games

To enjoy virtual reality, you need games. Gamers can explore everything from the blocky world of Minecraft VR to the blood and guts of Surgeon Simulator, which sends players on a mission to slash and destroy a simulated body (don’t try this one if you faint at the sight of blood).

Whether you have to pay sales tax on virtual reality games will depend on the state where you live. Computer games are software and taxes on software vary from state to state.

In some cases, the form in which you purchase the game will determine its taxability. For example, in Colorado, gaming software that is delivered virtually via download is free from sales tax. Local taxes may apply, since Colorado is a home rule state. But if you buy a game on some kind of physical form, such as a CD, the game will be subject to state sales tax in Colorado.

In most states, you can count on paying sales tax on virtual reality games if you buy a physical CD. Increasingly, sales and use tax applies to downloads of digital goods, as well: Tennessee has taxed the permanent or temporary right to access video game digital products since July 1, 2015, and the District of Columbia began taxing digital goods on January 1, 2019. Check out this state-by-state guide to the taxability of digital products for more state-specific information.

As states become ever-more savvy about the digital world, expect more sales taxes on virtual reality games.

Sales Tax on Virtual Reality Hardware

Virtual reality has a hidden real world cost: computer upgrades. To take advantage of the improved audio and video environment in the latest VR games, you may need to augment your computer equipment.

You may be busy drooling over the HTC Vive, but chances are slim that your current computer system can support its high-end graphics.

Preparing your computer to run VR could cost you as much as the VR equipment itself. Upgrades range from installing a new graphics card to getting a whole new system to support VR.

Whatever upgrades you choose, you will almost certainly pay sales tax on virtual reality hardware purchases. Computer equipment is tangible personal property that is subject to sales tax in all the states that have a sales tax.

If you are lucky enough to be an early adopter of VR gaming, enjoy your time in Second Life. Just remember that you will need to pay sales tax on virtual reality equipment and games in your first life.

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
Laura McCamy
Avalara Author Laura McCamy