LL request tax info from some customers and issue blog post clarification

secondlifeUpdate, November 28th: Linden Lab have clarified what they mean by “transaction”.

Some confusion occurred recently after some SL users started reporting they were receiving requests from Linden Lab for tax information, specifically to fill-out IRS form W9, Request for Taxpayer Information. The news of the e-mails sparked a discussion on the SL Universe forums, where opinions as to the cause of the e-mails was somewhat split, with some concerned as to why this should be happening and what it might mean, and others seeing it as a matter of routine.

On Tuesday 19th November, Linden Lab moved to try to clarify matters, issuing a blog post entitled Required Tax Documentation, which reads in full:

The Internal Revenue Service (IRS) requires Linden Lab to collect and retain Form W-9 (for U.S. residents) and Form W-8BEN (for non-U.S. residents) at certain transaction volumes. If you reach the transaction threshold and we do not have your completed and signed W-9 or W-8BEN on file, we are required to withhold funds from your account (at the current rate of 28% of your gross amounts received). Additionally, for U.S. residents with 200 or more transactions with a total amount in excess of $20,000 in a calendar year, we are required to file a Form 1099-K with the IRS reporting those transactions for that year.

If you are required to submit a W-9 or W-8BEN form to us, we will email you before the end of the year with instructions on how to do so. Please follow the instructions to complete and submit the required Form W-9 or W-8BEN within thirty (30) days of receipt. You will only need to complete this paperwork once unless your information changes from year-to-year. If you do not receive an email from Linden Lab, we do not need you to complete these forms.

While the blog post is welcome, some confusion and concerns remain.

One key area of confusion is exactly what constitutes a “transaction” – is it related solely to cashing-out from Second Life, or is it based on the number of user-to-user transaction through the LindeX (i.e. the number of L$ sales a person makes per amount of L$ they offer on the LindeX? Or is it somewhere in between?

A potential cause for concern is that many people cash-out via PayPal, and are also required to fill-out the requisite forms mentioned by Linden Lab,  so there is an understandable level of worry as to the risk of double reporting. While this is not strictly Linden Lab’s issue, it is nevertheless a genuine cause for concern.

It has been suggested that one way to clear-up some of the confusion and concern might be for additional explanation to be given through the likes of a Knowledgebase article linked to the entry on account balances and withdrawals. Another alternative might be through an official wiki article dealing with tax liabilities as a whole, much as there are similar entries dealing with matters such as European VAT.

Related Links

With thanks to Ciaran Laval and Peter Gray

6 thoughts on “LL request tax info from some customers and issue blog post clarification

  1. I’m a bit concerned about the “many people” who “cash-out via PayPal”. The reasons are best expressed in the YouTube video entitled PayPal Warnings, by Chris Pirillo. Here’s the link to it:

    For these reasons, I work with Skrill, and don’t interact with PayPal any more than I absolutely have to.
    Of course, it’s possible that PayPal has corrected for these concerns by now, in which case I would love to hear about it.

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    1. The easiest way to find out if PayPal has changed their User Agreement since Mr. Pirillo issues this video (which was a little over two years ago) is to …. read the PayPal User Agreement, which was last updated in November 2013.

      As it is, there appear to have been several changes to the user agreement (or statements within the agreement Mr. Pirillo may have overlooked) since the video was made. Such as Paypal offering to give notice of actions on an account, including account closure, offering time for funds to be withdrawn from accounts (subject to disputed amounts), what may be a revised section dealiong with risk, and so on. Some of these clauses are caveated in terms such as “where possible” – but that’s to be expected in terms of “legal CYA”. While I cannot claim to have read every line of the User Agreement as it currently stands, a search has failed to highlight any reference to the $2,500 and $1,000 charges Mr. Pirillo mentions. However, I do leave it to others to make a more thorough examination of the User Agreement in this regard.

      The key point with any terms of use is that they will naturally be biased towards the service provider and will push against whatever legal requirements may be applicable unless / until challenged. That’s the nature of the beast (and more particularly, of most service provisioning contracts). Hence, it is very much down to the individual to make sure they are comfortable with said terms before clicking through and using the service.

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