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Taxation of the Metaverse is Coming

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While it may be easier to transform ourselves and our settings in virtual realities, we still interact with others and, increasingly, engage in commercial activity. For there’s money to be made in the metaverse and that’s surely why many people are there. And where there's money, there will be taxes.

Jan 26th 2022
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Although all sales transactions are presumed taxable in states with a sales tax (unless there’s a specific exemption or exclusion), most states haven’t yet clarified which sales tax laws apply to sales made in the metaverse. When will they start? And how will they go about it?

David Lingerfelt, senior director of North America tax content at Avalara, says one of the biggest hurdles to taxing transactions in the metaverse is that many tax and government officials don’t know what the metaverse is. They don’t understand non-fungible tokens (NFTs). “And if you don’t know what something is, you can’t know how to approach taxing it.”

An NFT can be a jpeg of a child’s drawing (worth more in sentiment than dollars) or an original digital design by Beeple (worth more than $69 million). There are NFT sneakers by Adidas and Nike, NFT belts and handbags by Gucci, even NFT real estate. It seems the more businesses invest in NFTs and virtual worlds, the more consumers are willing to spend to enhance their own virtual experiences — or even profit from speculative purchases and resales of popular NFTs.

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