Should GameStop Charge Sales Tax On XBOX Live Memberships?

Reader Dave asks an interesting question. Should GameStop be charging sales tax on an XBOX live membership card? Generally speaking, only “tangible goods” are subject to sales tax, though every state is different.

Dave says he spoke to Romona at the IL Tax Dept. and confirmed that GameStop should not be charging sales tax on a subscription card. He also pointed us to this document, which doesn’t say anything about subscription cards, but does say that “prepaid telephone calling cards and other prepaid telephone calling arrangements,” are subject to sales tax. We suppose an XBOX live membership card is not wholly dissimilar to a prepaid calling card. Perhaps there’s been some confusion.

Are there any brilliant legal minds out there who can solve this one for us? Maybe Dave could sue GameStop like that toilet paper tax lady sued Kmart. That’s always fun.

Comments

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  1. Kos says:

    Try the Tax Prof Blog [taxprof.typepad.com]

  2. snoop-blog says:

    RHTFA! well lets see do they PAY sales tax on xbox live memberships? whatever the answer to that question is, is what i’d say.

    as long as they aren’t pocketing the extra money, i wouldn’t think they were just intenionally screwing people over.

  3. The Great Aussie Evil says:

    I say it depends on if the state taxes forex.

  4. MDSasquatch says:

    Forget about the taxes; I am shocked that someone actually has an X-Box that works well/long enough to justify an X-Box Live Membership! Don’t draw too much attention to yourself, Bill and his buddies might send their goons to find out how you got a “working” console. Someone could get fired over this :-^

  5. smitty1123 says:

    I would assume that you are really just buying a card that you can use to acivate a membership, not the actual membership. If that’s the case, I don’t see why it wouldn’t be taxable.

  6. The Great Aussie Evil says:

    @MDSasquatch: The Red Ring of Death is not a conspiracy, it’s just shoddy work.

  7. MDSasquatch says:

    Which is the reason I only have an Apple computer and Sony PS2 in my house.

  8. shadow735 says:

    What Smitty said, if you get something (membercard) and carry it out you can get charged sales tax

  9. ironchef says:

    they charge taxes on rental cars too. It depends on the state.

  10. 44 in a Row says:

    Plenty of states charge tax on services in addition to “tangible goods”. In addition, I think there’s two ways to look at this. One is, GameStop isn’t selling you a subscription, they’re selling you a physical card, which can then be redeemed for something else (in this case, use of XBox Live). The second is, many states have “use” taxes in addition to “sales” tax, and it’s possible that those states would look at XBox Live not as an intangible subscription, but a remote use of Microsoft’s physical servers. I’m not a lawyer, but I also know that I definitely pay tax on things like Netflix, cell phone service, monthly MMO fees, and plenty of other non-tangible subscription purchases.

  11. MarvinMar says:

    Ya know, I thought the same thing when my dad wanted to buy the Opera browser for his Wii.
    We wne on line and bought $10.00 in credits from the Wii Shop Channel. It cost like $10.80
    Not right at all.

    Sure beats giving Kmart $25.00 for a 2000 point WiiWare card though.

  12. drizzleray says:

    Buying the XBOX Live subscription directly from Microsoft through the console charges sales tax (at least it did when I paid for it about a year ago). I live in Texas.

  13. pegr says:

    So why do you pay sales tax on software if vendors insist that you do not own it but license it?

  14. parad0x360 says:

    @MDSasquatch: haha maybe that was funny 7 months ago, time to move on.

  15. mgyqmb says:

    At my previous job, we could not charge sales tax on Applecare enrollment cards. I would assume this falls under the same rules.

  16. mac-phisto says:

    in conn., services are taxable, so i believe xbla membership cards are taxed. however, they’re only taxed if purchased in conneticut (or purchased online from a retailer that has a physical address in the state). so, if you purchase them directly from microsoft, there’s no taxation at time of purchase (but you are legally required to pay “use tax” on any item bought outside of conn. that’s brought here for use).

    i don’t know what the law is in illinois though.

  17. MercuryPDX says:

    This is why I love living in a state WITH sales tax that borders one WITHOUT it. :)

  18. Javert says:

    Sales taxes are generally controlled by the state hence the question depends on what state…then you must ask, who is asking the question…yes, but who are you.

  19. 44 in a Row says:

    At my previous job, we could not charge sales tax on Applecare enrollment cards. I would assume this falls under the same rules.

    Sort of. The problem with generalizations here is that there’s a huge variety of services, and each state has the ability to tax some and not others as it chooses. Many states don’t charge tax for computer repair warranties, to use your example, but some do. Here’s a sort of general overview of how much variation there is:

    [www.taxadmin.org]

    There are about 170 different categories of services; there are states like Alaska (no services taxed) and Oregon (1 service taxed), and then there are states like Hawaii (160 services taxed) and Washington (157 services taxed).

    The bottom line is, I wouldn’t start complaining based on a statement like, “Only tangible goods are usually taxed”, because that’s just not true.

  20. NoWin says:

    Massachusetts started taxing “online services” last year (muny grubbing state bastards)

  21. juri squared says:

    I wonder if it’s just GameStop or if all stores do this. Anyone know?

  22. Munsoned says:

    Agree, many states tax services. Also, prepaid phone cards and calling cards are a wholly different creature. They get taxed because they are for telecom services (which almost all states seem to tax), not because they’re “cards used to obtain services.”

  23. ITDEFX says:

    Back in September of 2006 I bought the Halo 3 12+1 month Live card from Microcenter for my cousin for the 49.99 price and NO TAX. The next day I go ahead and pick up my 360 (since there was a good promotion going on) and forgot to pick up the live card so I stopped by Best buy on the way home and picked up the same Halo 3 card and was charged the 49.99 + TAX. When asked why does Microcenter does NOT charge tax and Best buy DOES CHARGE TAX, Management couldn’t give me an answer.

    Weird huh? Same county and everything too.

  24. boblc123 says:

    you should have to pay taxes on it just because you care enough about it to contact consumerist about a 1-time 3 dollar charge.

  25. jonnyobrien says:

    Depends on your state. I moved from MA to NY and renewed Costco. Yup, $100.00 for the Executive Membership was magically $108.62. I miss shopping in New Hampshire, land of no sales tax.

  26. WhiteTrashLegend says:

    Buy it on Amazon and get the product for less money AND no sales tax. Suckers shop and Gamestop.

  27. mgyqmb says:

    @44 in a Row: Good to know, thank you

  28. bohemian says:

    South Dakota thinks they can collect sales tax from any purchase you make online including downloads and services. It is sort of like the little dog with a napoleon complex. Yes the state of a whopping 750,000 people thinks they are going to change the entire internet and bring the world economy to their knees. These cards would be charged tax if you bought them in a physical store here.

  29. drjayphd says:

    @boblc123: Got yer GameStop W2 yet? -_-

  30. flamincheney says:

    I know that in MI you do not get taxed on food, but for fountain pop you pay tax because you are buyng a cup, it just happens to get filed with pop- doesn’t cake mix or crackers come in a box… I degress.

    Anyways I’m just saying maybe you bought a tangible card that just so happened to have MS points on it.

    In the future I’d just order them directly form your console. No tax there.

  31. y2julio says:

    @MDSasquatch: blah blah, that “joke” is so old.

  32. algormortis says:

    I know that in Washington you are indeed taxed, mostly because it’s a frequent complaint on product purchases here.

    I do gently remind people who get angry about taxation of services that we have no income tax, no tax on interest or capital gains, etc. Trust me, make more than 80 grand in Oregon and you’ll get it.

    (Not that i make 80 grand. Or even 70 or 60. And i work 60 hours a week in two jobs. Nevertheless, no tax on groceries, rent, tuition, or savings, so it benefits me nicely.)

  33. formated4tv says:

    I work at a GameStop in NJ, and Xbox Live subscriptions/point cards/Wii Points are all non-taxed.

  34. tubedogg says:

    Depends on who was working there when the individual POS was set up. Most stores that I’ve been to in northeast Ohio, including the three I worked at, did not charge tax either subscription cards (PC MMOs or Xbox Live) or points cards (Wii or Microsoft). There is a GameStop in Brunswick that does, though. At least they did. There is a tax matrix in the GameStop Store Procedure Manual that clearly says which states charge tax on a variety of items — magazine subscriptions and single issues, candy, time (subscription) cards, and a couple other things I believe.

  35. hc130radio says:

    you should have your apple computer just blow yourself, while your ps2 watches.

  36. blkhwk86 says:

    It generally depends on the state. I am from California and out here it would be considered a taxable item since, from my experience, it is something that is not an edible thing such as an apple or food at a grocery store. If he is looking at this as a “subscription,” then it should be under the same jurisdiction as an internet provider or mobile phone company. So if he goes ahead with a lawsuit, which I do not think he would win, he could then have waterfall cases on other companies that provide other subscription based services.

  37. Kloud says:

    @MDSasquatch: And Steve Jobs doesn’t tax you for the absolute privilege that is owning a perfect machine like a Mac?

  38. The Cynical Librarian says:

    In this case wouldn’t it be the same as the Wii points cards?
    I like the idea of dropping $21.19 for $20.00 in Wii points…

  39. RoboticClone says:

    I work at GameStop in New York City. We do not charge tax on any of the prepaid cards we sell. However i have heard of some other GameStops charging tax so I don’t know what our exact policy on this is (maybe it varies from state to state?). I do know that customers do come into our store to avoid buying then at best buy and other stores because it seems that those stores do charge tax

  40. Dennis says:

    The question of whether or not you should be required to pay tax is obviously dependent on your state, but if game stop did charge you tax and they should not have I would suggest contacting IL’s department of revenue services and seeking a refund.

  41. clash42 says:

    I work at a Gamestop in Maryland, and when selling these we don’t charge state tax. I would just assume this means it depends on the state tax laws.

  42. withremote says:

    Nintendo changes sales tax for Wii points (at least they do in Minnesota) when you download them from Wii Shop Channel. When I download them that doesn’t seem like they are tangible.