Tax & Accounting Blog

Kansas: Taxability of Digital Content for Use in an Online Video Game

Indirect Tax, Sales and Use Tax July 22, 2011

On June 16, 2011, the Kansas Department of Revenue issued a private letter ruling, P-2011-004, regarding whether certain digital products were subject to sales and use tax.

The first issue addressed was the taxability of digital content purchased for use in an online video games.  The taxpayer sells access codes to individual customers that allows the customer to access the described content on a third party server.  The Department of Revenue determined that these transactions were not subject to sales tax since Kansas does not tax charges that allow customers to access information electronically on a remote server.

The second issue addressed was the taxability of electronically delivered pre-written software in the form of complete video games or video game add-ons purchased by the customer and that are downloaded directly to a customer’s personal computer, gaming console, or mobile device.   The Department of Revenue found that these sales were taxable since pre-written computer software is taxable regardless of delivery method.

The next issue addressed was the taxability of plastic cards purchased by consumers containing subscription time to be used to access online networks that allow game play, interaction among other players on a network, access to digital online content, or the direct download of digital content to a consumer’s device.  The Department of Revenue ruled that the entire cost of the subscription cards is taxable, whether sold at retail or via the Internet.

The Department of Revenue also addressed was taxability of plastic cards purchased by consumers containing point values to be used within online networks for game play, interaction among other players on a network, access to digital content, or the direct download of digital content to a consumer’s device.  The Department of Revenue found that these sales were taxable whether sold at retail or via the Internet.

Finally, the Department of Revenue looked at the taxability of notational dollar value cards purchased by consumers that could be used within online networks for game play, interaction among other players on a network, access to digital online content or the direct download of digital content to a consumer’s device.  The Department of Revenue ruled that the the cards were not taxable when sold, but instead were taxable upon redemption, similar to gift certificates.

A copy of the private letter ruling can be found here:  PLR P-2011-004