From the 9/23/16 edition of the Weekly State Tax Report:

As we enter the third month since Pokémon GO was released in the United States, the initial hype over the app-based augmented reality game has died down, relatively speaking. Metrics recently released by Axiom Capital Management (citing data from Apptopia) indicate that the number of daily Pokémon GO users worldwide has now plateaued at around 32 million users daily, down from over 45 million at its peak in mid-July.

Despite this reality check (pun intended) in terms of growth, revenue estimates cited by App Annie Intelligence indicate that users are still spending upward of $10 million per day on PokéCoins, which are in turn used to make in-app purchases of Poké Balls, Egg Incubators, Eggs, Potions, Razz berries, Lure Modules, Incense and Bag Upgrades, all items that expedite a user's path to Pokémaster. Notably, through the end of August, Pokémon GO remains the top grossing app in the United States on both the Apple iOS App Store and Google Play according to Apptopia's Top Charts. Perhaps even more impressively, a recent research report released by Cowen Group analyst Doug Creutz found that Pokémon GO is on an annual revenue run rate of more than $1 billion.

While the average American simply sees a wildly popular (and addicting) game that takes a traditionally inactive endeavor and encourages participants to get out and “GO,” state tax departments and legislatures are likely to also see a large—and possibly untapped—$ 1 billion revenue source. Suffice it to say, the authors predict that state legislatures will be active in the digital download area in 2017, especially after remaining relatively quiet in 2016.

Stephen P. Kranz, Diann L. Smith, Mark W. Yopp and Eric D. Carstens from McDermott Will & Emery discuss several of the key state tax issues raised by the advent of Pokémon GO, including tax characterization, nexus and sourcing in this week’s BNA Insights article, available here (subscription required). Or sign up for a free trial to the Weekly State Tax Report.

Compiled by Lauren E. Colandreo