One of the earliest pioneers in the metaverse, Second Life still draws roughly 1 million users each month. The well-known metaverse is announcing that users in the US must now pay local sales tax on in-game purchases. This marks the first time Second Life is charging said tax since the platform’s 2003 launch.
Second Life: Paying real taxes on virtual land
To start, Second Life plans to limit this taxation to recurring bills, including land fees and premium subscriptions. The company isn’t the only one making a profit off virtual land. TerraZero joined the world of virtual realty earlier this year, giving out their first mortgage for digital land. Similarly, Decentraland sold virtual land to Metaverse Group for nearly $2.5 million In November 2021. Likewise, Republic Realm made a metaverse land purchase at roughly $4.3 million from The Sandbox.
As of now, the company will continue to absorb taxes for point-of-sale purchases, including first-time premium subscriptions, name changes and one-time L$ purchases. However, at some point in the future, the company will also forward these taxes to users.
The Wayfair Sales Tax Ruling
Second Life sights The Wayfair Sales Tax case decision of 2018 as a turning point for online sales tax. The ruling by the Supreme Court declares that state governments have the right to require retailers to collect state taxes even if they have no physical presence. Says Linden Labs, “Since then, we have done our best to shield our residents from these taxes as long as possible, but we are no longer able to absorb them.”
US sales tax varies from region to region. In fact, more than 13,000 sales and use tax jurisdictions exist in the United States. Rates are as high as 10.25 percent in cities such as Chicago, Illinois, while Delaware has no sales tax.
“Tax amounts are also affected by other factors such as the type of goods or services being purchased,” writes Lab. “To determine the charges, we will be relying on an automated third-party system which closely tracks local tax laws, so the tax amounts are always up to date.”