Indiana DOR: Video Game Subscriptions & Virtual Currency Non-Taxable

The Indiana Department of Revenue (DOR) issued an important ruling regarding the gaming industry's sales and use taxability rules. The ruling, which was made upon the request of the out-of-state video game publisher, provides significant clarifications and reasoning on why and when video game subscriptions, selling in-game items, and the supply of virtual currency are not taxable.

Matter of the Case and DORs Decision

The out-of-state game publisher, which requested the ruling on the subject matter, sells digital video games directly to consumers through a related entity and third-party vendors. More specifically, the publisher does not sell video games directly. Still, it offers players various options to improve the gaming experience, such as a monthly subscription to access multiplayer options, in-game items such as weapons, in-game enhancements, or expansion packs, and virtual currency that players can use to pay for subscriptions or buy in-game items.

In its ruling, the DOR underlined that, unlike prewritten computer software, which is treated as a tangible good and thus subject to sales and use tax, software-as-a-service (SaaS) and electronically accessed software without ownership transfer are not subject to sales tax.

Additionally, the DOR stated that while digital products such as movies, shows, e-books, or songs are subject to sales tax, the publishers' offerings do not meet the requirements to be considered digital products. More specifically, the DOR concluded that none of the offerings meet the criteria to be regarded as tangible goods or specified taxable digital products. Therefore, they are non-taxable.

Conclusion

Although the ruling guides other taxable persons operating in the gaming industry, it is worth noting that it is binding only for an out-of-state game publisher. Therefore, it is recommended that other taxable persons who face the same or a similar scenario seek guidance from the DOR, and, that way, avoid any potential issues or penalties for non-compliance.

Source: PwC