Even in the metaverse, you can’t escape the taxman

Enlarge / OK, open your eyes. Surprise! Now you have to pay local sales taxes on your virtual land purchase! (credit: Linden Labs)

Second Life, the long-lived online metaverse that still attracts nearly a million monthly active users, has announced it will start charging US users local sales tax on many in-game purchases for the first time since its launch in 2003. That could be a significant drag on the online universe's robust in-game economy and serve as a warning for other nascent metaverse efforts hoping to sell virtual goods to US residents.

In announcing the move Monday, Second Life developer Linden Labs cited the 2018 Supreme Court decision South Dakota v. Wayfair, Inc., Et Al. That decision established that states and localities could charge sales tax even for products sold by online companies that don't have a physical presence in that state. Following that decision, Linden Labs says it has "done our best to shield our residents from these taxes as long as possible, but we are no longer able to absorb them."

As such, starting March 31, Second Life users will be billed for local taxes on recurring billings such as subscriptions and land fees. Linden Labs will continue to absorb any taxes charged on one-time purchases like name changes and purchases of L$ in-game currency. But those costs will be passed on to users "at some point in the future" Linden Labs writes.

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