Colorado has issued a private letter ruling stating that “platform credits” offered by a company that offers video streaming services are not subject to Colorado sales tax. The company enables viewers to watch real-time streaming videos on its internet-based platform. During video livestreams, viewers can send platform credits to the video’s streamer to show support or garner attention. Viewers that send platform credits do not receive additional access to the streamer’s videos. When a viewer sends platform credits, it receives nothing of substance in return, in most instances. Viewers purchase the platform credits from the company then send them to the streamer using the chat function. The company then deducts the amount sent from the viewer’s account. The streamer does not receive the platform credits or any dollar value conversion of the platform credits at that time. Rather, as part of a monthly payout from the company, the streamer is rewarded a cash amount for each platform credit used in the chat. Viewers can unlock badges based on the number of platform credits sent. Viewers can also redeem platform credits for the ability to use third-party enhancements, which are interactive overlays and panels.
The Department of Revenue stated that the platform credits are not subject to Colorado sales tax. The platform credits are akin to gift cards. They are not taxable as tangible personal property. When a viewer redeems the platform credits, that transaction is also not subject to sales tax. If the viewer were to receive anything taxable in exchange for redeeming the platform credits, that transaction would be subject to sales tax. However, viewers are not acquiring any taxable tangible personal property or services. They are primarily receiving the service of having their chat message emphasized. While the viewer may purchase the recognition of earning certain badges, these services are not explicitly subject to sales tax. To the extent that platform credits compensate the video streamer, their redemption is in the nature of a non-taxable gratuity. Finally, the purchase of third-party enhancements is not subject to tax since the platform credits are not being used to purchase taxable tangible personal property or services. While the third-party enhancements could potentially be described as computer programs or program upgrades, the distinction is immaterial. While Colorado taxes digital goods, computer software delivered electronically is explicitly excluded from taxation. (PLR 22-005, Colorado Department of Revenue, July 22, 2022)