TTR Tax Answers Cover In-Game Purchases for Apps Like Pokemon GO

Jul 19th, 2016

Pokemon GO has become a country-wide hit. Pokemon GO is an "augmented reality" game where players search for Pokemon in the real world using a smartphone. 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. Just to clarify, 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 already researched all these questions and more.

How Did TTR Answer How to Apply Sales Tax 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 the tax laws, tax answers, and easy-to-understand explanations necessary to correctly apply sales tax to in-app purchases or microtransactions.

"The research team here is always on the lookout for hard-to-answer questions. Even more exciting are issues that no one else has researched comprehensively. Across all industries, TTR has become a pioneer for sales and use tax research in areas where others have not yet explored. 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. I believe that TTR provides a lot of value to industries.We are willing to invest our time, on our dollar to constantly expand our content and provide it to our existing subscribers. In that way, TTR is never stale or outdated. Ultimately, our goal is help simplify sales and use tax on every topic in every industry. For now, 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 microtransactions.