US State Taxes

[Chase Oxygen]

Hi Just thought I would throw this question out there and see if anyone can shed any light on the matter. Income derived from Second Life is subject to Federal income tax but what about State taxes? If you operate as a business or sole proprietor in a different state to California (to where LL is located) what other taxes could your SL income be subject to (other than business operating taxes)...does retail tax come into play (althought this would be difficult to calculate because the sale happened outside your state) Any ideas? 

 Cheers! 

[Amethyst Jetaime]

If its income for federal purposes its most likely income for state too and you need to report it on your state taxes too. Right now I believe that there is no sales tax due unless you have a brick and mortar store in a state. Then you'd have to charge and remit sales tax for that state if you sell to a resident of that state.  Of course you don't have a RL store and how would you know where a pixel avatar lives in RL?  I'd say no sales tax is due, but I am no lawyer or tax advisor. 

It may prove funny calling your state tax department and explaining you sell pixels in cyberspace for game tokens that you cash out to RL money and see what they say, if they even comprehend that.  I can see it as a Monty Python routine.

 

[Chase Oxygen]

Thanks for your response! You are making more sense than the accountant I'm employing lol  

The problem is the state I live in doesn't have state income tax and they are wanting to categorize these earnings somehow on a state level...retail sales tax seems to be what they are trying to push...but as you said how would that apply on virtual products by unknown identities and location. The digital content and service isn't even hosted or owned by me and a very small percentage of the sales would come from this state, if you were to even attempt to look at it that way. I don't know how people with businesses are filing this stuff...it's a nightmare! 

[Amethyst Jetaime]

Its certainly a case of the law being way behind technology and what people are doing with tech now. The brick and mortar law is federal and overrides the state.  So, as far as I know they can only make you collect tax from residents of your state IF there is a legal basis for saying your home is brick and mortar presence, which seems iffy.   But how to identify which of your customers live in your state?  You may not have sold anything to them and all your profits came from people in all other parts of the world.  I would have to say the state has to come up with a method for you to use, which of course is impossible.  Even LL couldn't  produce such a list since they don't require or check RL info.

[Chic Aeon]

As I understand it the retail tax for the internet is in the works. Happily I am now retired, but  SL income IS income subject to state tax as is any income derived from the internet. Not new news. I paid in plenty .

[Amethyst Jetaime]

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Chic Aeon wrote:

As I understand it the retail tax for the internet is in the works. Happily I am now retired, but  SL income IS income subject to state tax as is any income derived from the internet. Not new news. I paid in plenty

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This is true but the OP says he lives in a state where there is no income tax and the state is therefore trying to tax his earnings through sales tax.

There is a law being considered about starting to charge sales tax on the internet but it only passed the senate and not the house yet. . Govtrak.com currently gives the chance f it passing into law as only 14%.

One of the problems with such a law is the burden it places on small web only merchants to keep track of the laws of 50 states and file reports with them all.  In my state, if you are subject to collect sales tax you are required to file a report and submit it each month giving your total gross sales, a breakdown of  sales exempt from sales tax for various reasons, how much you collected in sales tax, a detailed report of your offsets for expenses related to collecting the tax for the state and more., even if you had zero sales subject to the tax. Multiply that the 45 states that have sales tax and you can see what a problem this could be and how it could drive small merchants out of business. The law is only supported by brick and mortar businesses, and state governments drooling over collecting the tax.

I am not sure how that law, if passed, is even enforceable in a situation like SL where the merchant has no idea where his customers live. Can you imagine the effect on the SL economy if everyone's RL residence information had to be made available to every merchant they did business with? 

 

[Perrie Juran]

The whole sales tax thing is a mess. 

It's simply easier for the states to put the burden of collecting taxes on the retailer.

In the interim what some States have done is require that people in their State declare and pay sales tax on items they purchased over the Internet.  The last two States I lived in did this when I filed my Income Tax.  So they are depending on my honesty.  But they know people cheat up the wazu on this and they have dollar signs in their eyes.

 

[Amethyst Jetaime]

Personally i'd like to see all sales tax abolished.  Its a burden for business.  The amount the goverment allows you to keep to cover your time and expenses collecting it is less than what it costs a business.  It is also a regressive tax.  Those that can least afford it are the ones that pay the highest percent of their income in sales tax.

[Czari Zenovka]

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Amethyst Jetaime wrote:

 

It may prove funny calling your state tax department and explaining you sell pixels in cyberspace for game tokens that you cash out to RL money and see what they say, if they even comprehend that.  I can see it as a Monty Python routine.

 

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Priceless!  Both what might happen if one contacted his state tax department re: SL sales and the video. 

I've had job interviews that were very reminiscent of this:

(Edit: Job Interview sketch followed by Encylopedia Salesman routine - this was the best quality of the Job Interview sketch I could find.)

 

 

[Perrie Juran]

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Amethyst Jetaime wrote:

Personally i'd like to see all sales tax abolished.  Its a burden for business.  The amount the goverment allows you to keep to cover your time and expenses collecting it is less than what it costs a business.  It is also a regressive tax.  Those that can least afford it are the ones that pay the highest percent of their income in sales tax.

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I've read so many articles proposing different ways to implement taxation and so many pros and cons to the different solutions I really do wonder if it is possible to come up with a system that people might consider is "fair" to everyone.

 

[Amethyst Jetaime]

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Perrie Juran wrote:

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Amethyst Jetaime wrote:

Personally i'd like to see all sales tax abolished.  Its a burden for business.  The amount the goverment allows you to keep to cover your time and expenses collecting it is less than what it costs a business.  It is also a regressive tax.  Those that can least afford it are the ones that pay the highest percent of their income in sales tax.

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I've read so many articles proposing different ways to implement taxation and so many pros and cons to the different solutions I really do wonder if it is possible to come up with a system that people might consider is "fair" to everyone.

 

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Perhaps a flat tax with no deductions - provided congress has to pay 10 times the rate of everyone else.  Maybe they'd figure out a reasonable rate for the rest of us and actually spend less money on pork barrels, perks for special interests,and corporate welfare, so that it was feasible.

 

[Czari Zenovka]

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Amethyst Jetaime wrote:

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Perrie Juran wrote:

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Amethyst Jetaime wrote:

Personally i'd like to see all sales tax abolished.  Its a burden for business.  The amount the goverment allows you to keep to cover your time and expenses collecting it is less than what it costs a business.  It is also a regressive tax.  Those that can least afford it are the ones that pay the highest percent of their income in sales tax.

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I've read so many articles proposing different ways to implement taxation and so many pros and cons to the different solutions I really do wonder if it is possible to come up with a system that people might consider is "fair" to everyone.

 

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Perhaps a flat tax with no deductions - provided congress has to pay 10 times the rate of everyone else.  Maybe they'd figure out a reasonable rate for the rest of us and actually spend less money on pork barrels, perks for special interests,and corporate welfare, so that it was feasible.

 

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This ^^

 

[Robert Galland]

I pay state income tax because that is the law of my state.  I have income that is taxed as wages and I also can apportion a good deal of income as royalties.   I do not pay retail tax.  You may have local municipal tax to pay also.  It really comes down to where you live. 

Consider paying a lawyer and or CPA in your state a few hundred bucks to really go over this stuff because it could save you many times that depending on your business.  I sat down with an accountant a few years ago to figure this stuff out, made my business into an S corp and that's legitimately saved me mucho money in taxes.