Online Poker: Income Tax and Trade Tax on Winnings
Profits from online poker games can be subject to income tax and trade tax. Under which conditions this is the case, the fiscal court of Münster decided in a currently published ruling.
For the assessment of whether the winnings from the poker game are taxable income, two important questions must be answered:
- Is it a game of skill or a game of chance?
- Is it purely a hobby or a “professional” online poker game?
Poker: Game of skill or game of chance?
In the case decided, it was a matter of poker in the game variant Texas Hold’em.
The court explained: “This variant is a game of skill and not a game of chance. This is important, because only if a game of chance is present, no commercial income arises.
The Münster Regional Court explained that even according to scientific-mathematical studies and practical tests, this variant could be classified as a game for an average player, in which not the element of chance, but the element of skill predominates.
Hobby or profession?
For commercial income to exist, the gambler must also participate “in the general economic traffic”. This means that he must maintain a service relationship with his fellow players at the (virtual) poker table of an online portal and appear externally recognizable to third parties. That was the case here.
A further prerequisite is the intention to make a profit. Of course, you want to win when you play poker – but is there also a tax-relevant intention to make a profit here? Yes, says the court: the player had carried out online poker playing over a certain period of time, thereby achieving profits and continuing with a consistently advantageous profit-making intention.
According to the overall picture of the circumstances, in particular the increase in playing time and the amount of the stakes, the player (after a certain initial period in which he only appeared as a hobby player) had crossed the line into a “professional” online poker game.
The consequence: The winnings from the poker game are income from business operations.
Background: The specific case
The dispute concerned income in 2009. The complaint was filed by a student who had been playing poker in the Texas Hold’em game variant in so-called individual games on the Internet since the fall of 2007.
Initially, he only bet cents and by the end of 2008 had won a total of around USD 1,000. The times he played online poker in 2007 and 2008 amounted to an estimated five to ten hours per month.
In 2009, the year in dispute, he played poker at four online portals. He increased his stakes from single digits to a low double-digit US dollar amount. He played an estimated total of 446 hours in 2009. During his playing hours, he used software independent of the online portals, which was provided to him free of charge in 2008. In the year in dispute 2009, he generated total winnings from the games on the individual online portals of – equivalent to – EUR 82,826.05.
In subsequent years, he multiplied his winnings from the online poker games.
The tax office was of the opinion that he had generated taxable income from business operations as a result of his participation in the online poker games and issued a corresponding income tax and trade tax assessment notice for the 2009 year in dispute.
The objection proceedings conducted by the plaintiff against this before the tax office were unsuccessful, but the student was partially justified in court: from October 2009, the income was commercial income, while the profits in the period prior to that were generated by the student as a hobby gambler and did not have to be taxed.