Tax Law

Virtual Pets and the Reality of Taxes – Texas Comptroller Affirms Sales Tax Assessment on Online Gaming Company

The Texas Comptroller adopted a proposed decision issued by an Administrative Law Judge (ALJ) finding that a company owed sales tax on its sales of online gaming services to Texas residents. The company, who had at least one employee in Texas, developed and maintained online interactive social gaming experiences for its registered users, including those allowing for the adoption of virtual pets. The ALJ determined that the company had sufficient nexus with the state and that the company provided taxable amusement services in Texas because in-state residents used its website services. The ALJ rejected the company’s argument that its services were provided at its out-of-state headquarters, and not where the Texas residents used the service. Instead, the ALJ ruled that an electronic game amusement service transaction “is consummated where the amusement service is provided or delivered, not at the seller’s place of business,” and that the company provided taxable amusement services in Texas.

Petitioner v. Texas Comptroller of Public Accounts, SOAH Docket No. 04-19-3723.26 (July 19, 2019)