Are sales made in the metaverse taxable?
by April 6, 2024
Please note: This blog was originally published in 2021. It’s since been updated for accuracy and comprehensiveness.
The metaverse, also known as the universal virtual world, gives people the ability to simulate physical connections digitally. And as the real world has spent the last few years navigating through a pandemic that has limited physical interactions, the metaverse has thrived. There are endless worlds for users to spend time in, and we’re seeing big companies like Meta investing in the future of the metaverse.
However, even though these virtual universes are fictional, the sales tax repercussions are real. Since users can make purchases in these virtual worlds, it leaves companies invested in the metaverse wondering, what about sales tax?
Sales tax and the metaverse
Turns out, avoiding sales tax is just a fantasy. Second Life, a popular virtual reality gaming platform that some say sparked the original metaverse, announced that they will begin charging sales tax on purchases made on the platform in the U.S. beginning March 31, 2022. Second Life shared that they will only be charging taxes on recurring billings like premium subscriptions and land fees.
The announcement also states that Second Life will continue to take on and pay the taxes at “point-of-sale purchases made, such as one-time L$ purchases (the Linden Dollar, the virtual economic currency in Second Life), first time premium subscriptions and name changes.” However – it is made clear that this might change in the future, and sales tax on those purchases may also be passed onto the customer.
Second Life is the first metaverse to begin collecting sales tax from users, but we expect it won’t be the last. Many states are beginning to update their sales tax laws surrounding digital products and purchases as the digital transformation continues to take hold. After all, if there is an opportunity for sales tax revenue to be made, states will create legislation to collect it.
NFTs are looking at similar taxation. While no state has officially declared NFTs taxable, there are many states that consider digital goods taxable, which could include NFTs as digital products. In addition, the IRS has started to tax NFTs, so it’s likely that similar sales tax legislation is coming soon. The days of only taxing purchases of physical, tangible goods are fading quickly.
Stay sales tax compliant in the metaverse
Just as Second Life explained in their announcement, individual sales tax charges vary by the user’s physical location. Even though a purchase is made in the digital world, the physical world matters for sales tax compliance. Keeping track of the laws related to digital goods and sales tax rate changes is an overwhelming amount of work. Especially for an innovative company focused on growing the digital universe.
That’s where a sales tax solution like TaxJar can help. TaxJar makes sales tax compliance easier with a user-friendly dashboard and alerts that help you understand where you have sales tax obligations. Our team stays up to date with changing sales tax legislation so you don’t have to, and can instead focus on your company’s growth.
Speak to a member of our sales team to discuss how TaxJar can help your company manage sales tax compliance in the metaverse.
