United States - More questions than answers in new VAT policy

Concerned residents filled Robin Linden's sim to capacity at an office hours meeting yesterday, with an almost equal amount of residents surrounding the sim, shouting messages in.  They had arrived to discuss Value Added Tax (more commonly referred to as 'VAT'), the European tax on non-essential goods and services, and Linden Lab's handling of its implementation in Second Life.  According to Robin, “VAT applies to US$ purchases you make from [Linden Lab]”, which includes Premium subscriptions and land fees but not to inter-resident purchases such as the LindeX.

Robin however proved unable to answer many of the questions put to her, which shocked a number of residents. “I am surprised and irritated that Linden did not have the foresight to recognise this meeting would have many of us wishing to ask questions ... about VAT,” said Yoyo Shinobu, a member of the Against VAT in SL group.  Robin's stance remained firm however, with her stating “[We] made this decision based on tax advice.  I'm not an expert, and can't debate it with you.” and “I can apologize for not communicating better, but I can't help with questions about VAT.”  Instead of holding a full discussion she answered what few questions she was able and promised to set up a meeting with a tax expert who could answer the many VAT questions “during Europe-friendly hours” next week.

The flooding of Robin's office hours meeting was due to the announcement on September 27 that VAT was now due as of the next bill received by any resident in the European Union ('the EU').  For some this meant VAT was immediately applicable and others still did not receive the e-mail announcement; which potentially resulted in an immediate violation of European tax laws.  European laws state that all prices for goods and services for which VAT is payable must be VAT-inclusive, i.e. the price may not be “$22.50 + VAT”.  European residents are therefore entitled by law to assume that the prices on Linden Lab's Web site include their VAT charges.  At the time of writing, the premium subscription charge stated on the Second Life Web site remained  at $22.50 and did not contain a reference to VAT.

VAT on costs for virtual worlds such as Second Life are controversial, with many people inside and out of Second Life debating whether the tax is applicable to virtual goods.  Daniela Donat summed-up many residents' feeling with the question “If I buy real land in the US, I don't have to pay VAT, why do I pay it on virtual land?”.

The tax stems from the 2002 European E-Commerce Directive regarding Value Added Tax (also known as Directive 2002/38/EC), which defines “electronic deliveries” that are “consumed in the European Union” as a taxable.