In a state ruling, dated January 07, 2025, the Indiana Department of Revenue (Department) determined that a video game publisher based outside the state does not have to collect sales tax on three different optional purchases.
The company, an out-of-state video game publisher, requested the Department issue a ruling regarding the sales and use tax implications on the sale of extra optional features to enhance the gameplay experience. The company does not sell video games itself, instead, a related entity sells the games digitally, either to customers or through third-party vendors. However, the company does sell optional extra features. The extra features are offered to the customers after they have purchased the video game and include a monthly subscription for online multiplayer access; in-game items such as costumes, weapons, and time-saving boosts; and virtual currency that can be used to buy in-game items or pay for the monthly subscription.
The state ruled that the monthly subscription, in-game items, and virtual currency sold by the company do not qualify as physical goods or taxable digital products and therefore the sales of such are not subject to sales tax. If you are a taxpayer operating in this space and sell into Indiana, this revenue ruling can be used as a guide to determine the taxability of your products. However, a revenue ruling is specific to an individual taxpayer so if your facts vary in any way, you may want to seek guidance from the Department separately. (Revenue Ruling #2024-04-RST, Indiana Department of State Revenue, January 07, 2025)