A few weeks ago, Sony announced the future release of PlayStation Stars, a loyalty program for its PlayStation game console owners. Participants will be rewarded for simply logging in and playing a game at least once per month, winning tournaments, or unlocking an achievement before anyone else. Some of these rewards have real-world value which could mean real-world tax consequences.
Rewards will come in the form of loyalty points which can be redeemed for Playstation Network Wallet Funds (their in-house virtual currency) and select PlayStation Store products.
Rewards will also come in the form of “digital collectibles” which are supposed to be digital representations of iconic characters and other historical items. Some of these collectibles will be rare. While this may sound like the questionable Non-Fungible Tokens or NFTs, a Sony representative made it clear that they are not NFTs or will it use blockchain technologies. Also, the collectibles cannot be traded or sold.
While items such as games and online subscriptions may be worth too little for tax agencies to care, Sony could award substantial cash prizes or hot-ticket items like a PlayStation 5 console to attract attention to the Stars program. If large-value prizes are awarded, they may have to issue 1099s, and the winners will have to pay income taxes on the value of the winnings.
Or Sony might inadvertently award prizes that could later be worth a lot of money. For example, the winner of a video game tournament could be awarded a one-of-a-kind modified version of the game. While this might seem like nothing more than a memento of the accomplishment, it can later be sold for quite a bit of money. To give an example, in 1990, the top players at the Nintendo World Championship were given an exclusive game cartridge that featured modified versions of the games played at the tournament. The winner and runners up received a gold-plated cartridge, and the finalists received a gray cartridge. These cartridges were not sold in stores, making them extremely rare. In 2014, the gold-plated cartridge was sold for $100,000 on eBay. There is speculation that the gold cartridge could be worth $1 million while the gray cartridge could sell for at least $100,000 today. Thankfully in cases like this, the taxable event will likely occur when the item is sold since there is no way to tell what a rare game will sell for later.
As for the loyalty points themselves, they sound like a virtual currency. But since they can be used to purchase only PlayStation products, they probably have limited real-world value so the acquisition of the points are not likely to trigger a taxable event. But the taxable event could occur if they can be cashed out, or when the points are used to purchase real-world items.
While PlayStation Stars might be an attempt by Sony to keep their user base from moving over to Microsoft’s Xbox or that day’s history homework, handing out rewards that have real-world value could have real-world tax consequences. If the program is not implemented carefully, especially when it comes to big-ticket items, some of their gamers could be stuck with a tax bill they did not expect.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.
