MCMINNVILLE, Ore., July 20, 2016 /PRNewswire/ -- Pokemon GO, an "augmented reality" game where players search for Pokemon in the real world using a smartphone, has become a country-wide hit. Users can "travel" between the real world and the virtual world of Pokemon. The game is free to play, but users can make in-game purchases.
What Are In-Game Purchases?
In-game purchases are also called microtransactions. A microtransaction allows a person to purchase online goods, usually in a free-to-play game or on a mobile app (like Pokemon GO). You may have played Pokemon GO or another one of these games on your smartphone or on Facebook. When a person purchases an upgrade or pays to unlock a new level, that purchase is called an in-game purchase, in-app purchase, or microtransaction. Essentially, the game or app user is trading real money for a digital product.
Because these games and apps are usually free, microtransactions provide income for game developers. Free-to-play games are a billion dollar industry because of microtransactions. The question is, of course, how do you apply sales tax to a microtransaction? If a person buys in-game "gold coins," is that purchase taxable? If a player of Pokemon GO purchases "incense" or "lure modules" to attract Pokemon, are those purchases taxable? What happens when the person uses those coins to purchase an in-game upgrade? Would different rules apply?
TTR has answered all these questions and more.
How Is Sales Tax Applied to In-Game Purchases?
TTR's research team worked closely with companies that produce free-to-play games and sell online products using in-app purchases or microtransactions. After hundreds of hours of research, TTR released a series of questions and answers, with plain English explanations and legal support across all states. This release provides all tax laws, tax answers, and easy-to-understand explanations necessary to correctly apply sales tax to in-app purchases.
"We've spent quite a bit of time in the gaming industry recently. In addition to the in-app purchases research, we recently completed 'in-game' communication research – called non-interconnected VoIP for the telecommunications and gaming industries. These tax answers will really help game developers collect sales tax correctly and continue to thrive." – Ken Webster, Director of Research
Contact TTR today to get correct tax answers for in-app purchases.
Contact: Lisa Lindman, 503-472-8500, [email protected]