Taxing Virtual Gaming Assets

rijit writes " It appears very likely that taxation of online games assets is inevitable. Quote: 'That's because game publishers may well in the not too distant future have to send the forms — which individuals receive when earning nonemployee income from companies or institutions — to virtual world players engaging in transactions for valuable items like Ultima Online castles, EverQuest weapons or Second Life currency, even when those players don't convert the assets into cash.' "

Oh, I know.

[AltGrendel]

Since they are taxing virtual goods, we'll pay with virtual money.

If we don't pay

[Weaselmancer]

Will they put our characters in a virtual debtor's prison?

Re:If we don't pay

[LordEd]

Your character will be transferred from your originating game to the federal pound-me-in-the-ass prison game for a 6 month subscription. Unfortunately, the conjugal visit expansion will not be available anytime soon.

That's ok

[Weaselmancer]

The conjugal visit expansion would confuse most online gamers anyways.

Re:That's ok

[Fozzyuw]

The conjugal visit expansion would confuse most online gamers anyways.

Nah, they'll just complain that the expansion 'ruined' the original game by forcing people grind even more than they where doing before without adding any real content. They'll also say it's unbalanced as not everyone will be able to experience the new content unless your hardcore!

Re:If we don't pay

[I Like Pudding]

Your character will be transferred from your originating game to the federal pound-me-in-the-ass prison game for a 6 month subscription.

But I already have an Everquest subscription!

Re:Oh, I know.

[Lord_Slepnir]

And watch the Warcraft economy get even more ruined when the IRS tries to convert their gold to cash.

To: Seren

From: IRS dude

Subject: $$$ GOLD NOW!!!

Go to www.irs.gov/warcraft for the LOWEST WARCRAFT PRICES GOLD PRICES EVER! Rates as low as $9.47 for 100 gold! Amazing!

Be careful if you live in FL

[Overzeetop]

Somebody might get the bright idea to tax your in-world posessions as intangibles. Several states have such a tax - though not mine, so I don't know all the details. It may not stop at "income" taxes.

Re:Be careful if you live in FL

[SatanicPuppy]

The thing is, in the real world those things are taxed--when they are converted to actual cash. It's called "Capital Gains". The whole point is to take into account the variable nature of value in price fluxuating commodity goods.

If you buy 1,000 shares of stock for one penny each, and those 1,000 shares zip up to 5,000 dollars a piece, you don't owe a dime of tax (unless you receive dividends). If they drop back down to 1 cent each, and you sell, you owe tax based on the amount of money you made when converting the shares back to cash, which, in this case, would be 10.00.

You do NOT owe money based on how much that stock was worth at it's peak, because you didn't sell it at that value, and it would be grossly unfair to tax you based on the 5,000 dollar a share value, when you sold at 1 penny a share...That'd be on the order of a million dollars tax owed on a ten dollar sale.

Since WoW gold, etc, is valued at different values on different servers, and since that value fluxuates on a daily basis, it would seem to be impossible for the IRS to tax "gains" of WoW gold/items that have not been converted to actual currency...At what value would they fix those assets? It's be like taxing your penny stock at the 5,000 dollar mark...You don't have that money, and there is no guarantee that you'll ever have that money, so how can they tax it?

Now, if you sold gold/items/characters, that would be completely taxable, but I wouldn't think it would even fall under capital gains, but rather unreported non-work income, just like any other money gained from where people don't do your tax witholding for you.

Just stupid.

From the FL dept of revenue

[Overzeetop]

From the FL dept of revenue:

What is Intangible Personal Property Tax?

Florida's intangible personal property tax is an annual tax based on the current market value, as of January 1, of intangible personal property owned, managed, or controlled by Florida residents or persons doing business in Florida. (empahsis mine)

Now, currently, intangible property is limited to stocks, bonds, etc., but there's no reason that the state couldn't extend that to property in a game (though it's unlikely). Remember, too, that businesses are often taxed on business property, which is valued every year at current market value or at depreciated value, depending on the type.

There are lots of pitfalls in the way things are taxed - mostly to get around people who try and get around the system, or to extract revenue from other/new sources (FL has lots of retirees, retirees have low incomes but high net worths - intangibles is a way to get at that money).

Re:

[Anonymous Coward]

Which brings me to this question.

Why does the Government feel it needs to tax everything possible? Can the absense of tax, and rule of tax law for a given commodity exist in a free market? Is it so hard for economists, the IRS, and politicians to grasp that just because you can tax something, doesn't necessarily mean you should?

Here is a simple answer to the above: If the total taxes collected from this commodity is greater than the amount of expenditures required by the Government to a) write the tax code

Re:Be careful if you live in FL

[Grishnakh]

What are you talking about? Have you ever filled out tax forms? When you sell stock, you fill in the 1040 Schedule D form with the number and type of shares, the sale price, and the "basis" (which is how much it cost you to buy them). Both these values include the transaction fees, so if you buy $10 of stock and E*TRADE charges $20 to perform the trade, your basis is $30. Then when you stupidly sell the stock for the same $10, and E*TRADE charges another $20 to perform the trade, your sale price is -$10. The difference is -$40. So you report a loss on your 1040 form for capital gains.

Re:

[pizzaman100]

Which brings up the inevitable ... if you have gawdawful item of unlordly worth and you lose it by say dying in game can you write it off on your taxes.

Maybe your virtual dependents could collect Social Security.

Re:Be careful if you live in FL

[Znork]

However, MMORPG items have no enforced scarcity, which makes them about as valuable from an investment point of view as cereal decoder rings, or stock in a company where new stock is issued by simply running the photocopier (as much as possible, and buying more photocopiers from the issued stock...).

For any kind of real economic recognition, unless the IRS and the state department feels it's a good idea to essentially hand a money printing permit to the MMORPG companies, with the associated real-world currency inflation, the virtual worlds economy engines would need to be under SEC and/or central bank control.

How many dupe bugs, run-amok sysadmins, random item rarity changes, and outright company _sales_ of the virtual items would it take before we'd get Sarbanes-Oxley for MMORPG's? New profession coming in the new expansion; Accountant. No players may loot items without an Accountant in the group...

"it's not as though dollars actually represent any stable tangible assets anymore."

A particular dollar in your bank account does, however, represent a physical dollar payable to you. If the bank allowed a teller to multiply your account balance with a billion, that bank would have a problem, as they themselves, unlike the MMORPG vendor, cannot simply print more to give you.

Re:Be careful if you live in FL

[Osiris Ani]

A particular dollar in your bank account does, however, represent a physical dollar payable to you.

A physical greenback hardly qualifies as a "stable tangible asset." How many Euros will a USD net me tomorrow? How about the day after? In July it was 0.8 USD, but right now it's closer to 0.75. A dollar merely represents a particular value, but as with many other things fiscal, that value is quite fluid.

Re:Be careful if you live in FL

[Da_Weasel]

In some games users can set up stores to sell items. Some people use very deceptive tactics to trick others and bilk money from them. Would this now become a crime, punishable in court? Would you need a business license to set up a store in a virtual realm where your store can end up right next to someone form another country?

I think what you would ultimately see is a drop in the number of casual MMO players like myself, and the constant complaining from the hard core MMO crowd.

Re:Oh, I know.

[Angostura]

Excellent. I can't wait to start submitting all my virtual businesses expenses to them. I'm making a massive loss in my Second Life business, which I shall enjoy using to offset my real life business profits.

Re:

[GeekDork]

Just make sure you get proper receipt for that 20p artefact, and don't get caught trying to get a tax refund for you Trifecta addiction.

Re:Oh, I know.

[RingDev]

Good call, what if my under 16 year old child wins some uber digital item that the IRS deams has a real world value of $125,000. Then we take that item and donate it to some Disabled Vets NFP (ie: Tax shelter organization) in game guild. Can I claim that $125,000 fair market value donation on my tax return?

Heck, if so, anyone with a fat pile of capital gains may start looking into sponsored events in MMOs. Sure, pay a couple of college kids $5/hr to play a game they enjoy and to turn over any high value items. Donate the high value items for tax write offs and blammo! For a couple grand in labor you have a huge tax incentive!

-Rick

Re:Oh, I know.

[terrymr]

You don't really gain anything since you'd be counting the 125,000 as income and then subtracting your donation from that.

Re:

[RingDev]

It's been a while since I was young enough to worry about it, but don't minors under 16 have some form of exemption? And wouldn't there have to be some form of exemption on this? Imagine low/middle income class Ma & Pa's suprise when they get a $50,000 bill from the IRS for past due taxes because their 14 year old kid went on a bunch of raids over summer break the year before.

-Rick

Re:

[Fozzyuw]

Since they are taxing virtual goods, we'll pay with virtual money.

God, and I thought playing was like a 2nd job before! Now, I'll have to farm gold to actually pay for my game! hehe

So, can my character have some fast food hats and aprons for when I'm working to pay my virtual tax?

Cheers,
Fozzy

Re:

[Kenja]

Even better. If the virtual money is taxed as income, then my expenses in game are tax deductible. Raid repair costs, epic flying mount, sword of a thousand truths, all right offs.

Reality Check

[Grech]

At the moment, the only virtual goods with any intrinsic potentially taxable value are those in Second Life and other worlds which grant actual ownership of objects to players. In these kinds of situations, there may be barter consequences, but only if there is a way to actually determine the $US value of the object. Consequently, it is possible to incur a deductable expense in the creation of such object, and in general it will behave like any other intangible capital asset, including the existence of a

Monopoly Rent IS Next?

[arthurpaliden]

If that is the case, will they soon be taxing player earnings from board games as well?

Re:

[Lane.exe]

Baseball cards are a capital asset. The rules for computing capital gains are different than ordinary income tax. I won't pretend to be able to tell you about them, but if you're interested, they are considered capital gains. How they're taxed is going to depend on how long you hold them, if you sell them at a loss, etc. If you do a straight trade on cards, then the only question is what your basis in your new cards is when you sell them (realize the gain or loss).

Tax law is made by Satan for Satan and un

Taxes suck, but why not?

[QuantumFTL]

Why do governments tax anything in the first place? It's because public services cost money, and that's a convenient way to of collecting said money (and because they are usually the ones that have all the guns).

I personally don't see how this is any different than, say, taxing sales of Beenie Babies, whose value (like so many things) is also largely virtual.

As a registered Libertarian, I can't say I'm too happy with trends towards new taxation (internet sales tax, etc), but this type of thing may be inevitable as more and more people make significant portions of their income in online environments. Maybe this should be targetted only at assets that can be legally converted to cash?

Re:Taxes suck, but why not?

[voice_of_all_reason]

Why do governments tax anything in the first place?

The same reason a dogs licks their balls. Because they can.

As to your comment about the guns, taxes usually increase in a fairly consistent matter through a nation's history up until enough people with guns have had enough.

Re:Taxes suck, but why not?

[voice_of_all_reason]

The English, French, and American Revolutions were all instigated partly by new or opressive taxes

Re:

[KDR_11k]

That's usually because of a disparity between two groups within the population where one group has the power and uses it to exploit the other. The state needs its money, when the aristocracy is nice enough to the government the money will be leveraged from the plebs instead. If the aristocrats exploit the plebs to a degree where the plebs feel they cannot survive like this and wouild rather risk their lives in a revolution than take these taxes a revolution starts. We're far from the point where taxes take

Re:

[Fujisawa Sensei]

You obviously didn't graduate from Yale. :-P

Re:

[joshetc]

I see it the same as say, having your own tomato garden and eating tomatoes from it every day while the government taxes you. I could understand a sales tax if you sell items for real currency.. Income tax is quite rediculous though.

Re:Taxes suck, but why not?

[mr_mischief]

The Chairman of the Joint Economic Committee agrees with you. [house.gov]

Re:Taxes suck, but why not?

[SatanicPuppy]

Lot of people think income taxes are stupid...Mostly they are people who makes lots of money.

The alternative to income taxes would be federal sales tax, which is generally considered to put an undue tax burden on people who don't make a lot of money...eg, the rich man and the poor man buy a loaf of bread, and the 30 cents tax on the bread that goes to the Fed means nothing to the rich man, but means a lot to the poor man.

I suppose that you could add heavy taxes on luxury goods to "even out" the tax burden, but that's not exactly fair to the middle class (my new flat screen is gonna cost WHAT?!), and it puts luxury goods completely out of reach for poorer families.

Taxes are there to provide services for the whole of the population, whether it's paying for the military to protect our borders, and the police to protect our homes, or paying to clean up toxic waste spills, or paying for the interstate system, etc. People who demand "a la carte" government services always annoy the crap out of me, because they're always the people who refuse to see the point in anything that doesn't benefit them in a big tangible sort of way.

Re:

[SatanicPuppy]

I don't mind income tax so much, though it does piss me off when money gets wasted on stupid crap. Not surprised you posted as A.C however. Funny how people whose arguments boil down to "People who are poorer than me don't matter, and shouldn't get a dime of my money if they were starving in the gutter" don't like putting their name on their opinions.

Yea, the McDonald's employee with the Rolex is a real common problem.

Yea people have screwed up priorities. Some poor people blow money on non-essentials, just

Re:

[kalirion]

I personally don't see how this is any different than, say, taxing sales of Beenie Babies, whose value (like so many things) is also largely virtual.

I point you to the end of the first sentence of the second paragraph of the article, which also appears in the summary: even when those players don't convert the assets into cash.

This seems to imply an analogue to paying tax when you aquire a Beenie Babie by trading a Cabbage Patch doll for it.

How can we be taxed on something we don't own?

[IflyRC]

Every single MMOPRG states in its own EULA that the virtual goods received in game are their own property. Now, even if they can't stop all E-bay auctions, web sites selling currency or characters it doesn't change the fact that the sellers do not own the property to begin with. If anything, its trafficing in stolen goods. The EULA loans you the virtual item for gameplay then you go and sell it for real world currency? Tax the sell, not the game company so those people who do not sell it don't have to pay it. Even in some states illegal drugs are taxable which is enforced on top of a fine in some cases.

Re:

[Cruise_WD]

I think this going to be key - how much do you truly "own" anything in a MMOG? If the parent is correct in saying these items remains at all times the property of the games companies then there is surely no issue - you have no assets in the game world.

If your neighbour lent you his lawmower, and you sold it, do you get taxed on the sale or prosecuted for theft? And while it isn't technically "theft" since the game company still has full access to said item, you're still recieving money for something you don

Re:

[j00r0m4nc3r]

Why do governments tax anything in the first place? It's because public services cost money, and that's a convenient way to of collecting said money (and because they are usually the ones that have all the guns).

Wrong. Governments will tax anything that they can so long as the people let them. The government doesn't run the country, the people do. I think many people have forgotten this. And as for them having all the guns, that's the purpose of the 2nd ammendment -- to make sure they NEVER have ALL the

Re:

[tomstdenis]

Um, there have been enough random shootings, snipings, etc that it's not out of the realm of plausible.

I've heard (dunno how true it is but I can believe it) that a non-trivial fraction of all gun shootings involve the victim being shot with their own gun (when they own a gun that is).

I can believe it because

1. Kids get hold of guns
2. Thiefs find them
3. Most people who carry guns (conceal carry...) aren't really trained on how to use them anyways.

The point is though, above all, society works because soci

Re:

[Broken scope]

I'm alive because I shot the guy who opened my car door and stabbed me on the shoulder twice while trying to pull me out and toss me into the on coming traffic in his attempt to steal my car.

Re:

[theghost]

In the spirit of the source article...

Screenshots or it didn't happen.

Re:

[tomstdenis]

Yeah, except by packing heat all it means are that the criminals will start packing heat too, omg like what is happening in the states.

Canada has crime too. But if I want to rob a gas station, I just put on a ski mask, and demand all their money. I don't need a gun since the clerk will either hand me the money or try and beat the shit out of me with their own hands. But in the states, the same low paid clerk is likely packing heat, so I'll shoot first then take the money.

Any self-defense class will teach

Re:

[tomstdenis]

Think about it. Most robbers just want the money, they don't want to hurt you. And in the cases where they do, they have the advantage of time. Before you can pull out your gun, aim and fire they've already put 6 rounds into your chest.

As to the the "20ft" rule, I suggest you try this experiment. Close your eyes, put your hands in a relaxed position (not around the holster), open your eyes and shoot as quickly as you can. See how long it takes between "seeing the target" and actually accurately putting

Re:

[Hijacked Public]

I'm going to go ahead and believe the guys at what is probably the most well respected private firearms training facility in the world (Gunsite), and Blackwater, who's training kept me and a whole lot of other people pretty safe despite being in one of the most fucked up places on earth, over some guy on Slashdot.

But I'm happy to let you hold such infantile views on the way these things go down as long as you don't try to force me to live the same way.

Re:Taxes suck, but why not?

[theghost]

In order to win an anonymous argument on the internet you just wished (perhaps hypothetically) for your opponent, his friends, and all the innocent bystanders near them to be killed. Think about what that says about you.

Regardless of the validity of your claims, you have lost all credibility because you have proven that you don't have a sense of perspective.

And since this is an article about (primarily) mmos...

GG L2Argue Nub. Pwnt!

virtual money

[El_Muerte_TDS]

If they want to tax virtual assets then they should also accept virtual money to be used for tax payments.

Also, do players actually own the virtual assets? Because aas far as I can tell it's the game operator that actually owns them since they can always take those assets away from the player (for example by cancelling their account).

Re:virtual money

[kiberovca]

Not only that. Government has to support virtual people just the same as real people. Citizens pay taxes to the state, but on the other hand, the state protects its citizens (yes, I know that is an ideal situation, but it's written in the constitution of every legal state). So, if someone kills me in the WOW, or steals something from me in Second Life, will he be sanctioned by the state, and in what way? What about other laws? Prostitution, drugs, pedophilia...? And also, what about us that are not citizens of the USA? To whom and in what way will we have to pay, and what will we get in the return?

Re:

[Lord_Slepnir]

Also: My guild forced my priest to spec to holy. Am I now eligible for welfare since I can't farm as well as I used to? Can I get food stamps to pay for my Morning Glory Dew? If my guild kicks me out, can I sue them for alimony until I find a new guild?

Re:virtual money

[Frosty Piss]

Because aas far as I can tell it's the game operator that actually owns them since they can always take those assets away from the player (for example by cancelling their account).

Gamers can't have it both ways, try to monetize their virtual assets, and then say it's not really worth anything. We know very well than many people make lots of money on this useless crap, so obviously, it's worth something. One way or the other, people. Taxes are a bitch, but they too exist.

Re:virtual money

[Neoprofin]

The difference is real world value.

If you find a handkercheif on the ground that you're going to claim was used by William Shatner should you be taxed for the supposed real world value? No, but if you sell said item on ebay, suddenly it has value, value that you should be taxed on if you're honest when filling out your forms.

Finding the phatest l00t ever in WoW isn't worth anything, the items not really yours, the character who found it isn't really yours, the server it exists upon definitely isn't yours. The second you sell it for real world money though, that is income and it should be taxed.

Most people are not asking to have it both ways, a line should be drawn. Virtual assets are virtual assets, real money is real money, you can tax the real money that someone gets for selling access to virtual items, you can't tax virtual items which in an of themselves have no real value.

Re:virtual money

[Jon-1]

Not only is this a good idea, but this is what's happening now. Your virtual assets are worthless till you sell them for dollars. When you receive those dollars, that's a taxable event.

The IRS openly indicates in publication 525 that, "If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year you return it to its rightful owner." The same applies to accepting bribes. You can read it here [irs.gov]. Basically, it doesn't usually matter how you receive income, it's taxed.

Re:

[tfinniga]

IIRC, those laws were often used against gangsters. They couldn't prove racketeering or extortion, as people were unwilling to testify. But they could prove untaxed income, and gave them exceedingly harsh sentences.

Re:

[mr_mischief]

A retail store doesn't pay sales taxes on items sitting on the shelves. There's no sales tax until there's a sale. If I build a bookcase in my home for my own use, I'm not taxed on the possibility that I'll sell it. Income is only taxed as income once it's received as... income.

So why in the world would anyone stand for being taxed for doing well in a game? You're paying taxes on your real income, then you're paying for the sign-up kit, paying taxes on the sign-up kit, then you're paying taxes on the networ

Re:

[cloricus]

I don't want it both ways. I play my MMO for a few hours a week as a relaxing game and have no interest of selling any items, isk, or my account - if I stop playing my account will die away. To me it is a game and as far as I'm concerned I don't have to pay tax to play monopoly then I shouldn't have to pay taxes to play my favorite MMO. If they intend to push this sort of thing then I'm sorry to say that I will be evading tax for the first time in my life on this one item.

Bullshit

[Moraelin]

Gamers can't have it both ways, try to monetize their virtual assets, and then say it's not really worth anything. We know very well than many people make lots of money on this useless crap, so obviously, it's worth something. One way or the other, people. Taxes are a bitch, but they too exist.

I'm sorry, but who is this homogenous "gamers" category where everyone says the same thing, does the same thing, etc? Has it ever occured to you that maybe two different people can actually have two different goals, t

Re:

[bhmit1]

That would be the fair thing to do, but the government doesn't always play fair. Taxes on stock options or a huge example of this, where in some cases (when you hit the AMT threshold) you are responsible for the "income" you received from the difference between the cost of the option and the value of the stock, even if you never cashed out of the stock. There are lots of sad stories of people broke because they owe taxes on stocks that crashed during the dot come on money that they never saw. The Liberta

taxes on virtual goods?

[deanj]

Paying taxes on virtual goods that are exchanged for real money... That I can understand.

Paying taxes on virtual goods where you don't exchange for real money is stupid.

What, are they going to start looking through my character's inventory, evaluating how much my +10 Sword of Uberness is worth?

Re:taxes on virtual goods?

[Jasin Natael]

How is it any different than having to pay capital gains tax on the part of your nominal gains counteracted by inflation? You haven't gained anything! Take the extreme example -- You have certificates of deposit for gold (the metal), and you have to pay capital gains tax when the dollar loses value, even though the gold's purchasing power is virtually guaranteed to be constant in the long run!

I'm not entirely sure that logical ratiocination and taxation have ever been formally introduced. If they were, they probably decided pretty quickly that they didn't belong in the same room together.

Sign Up

[lupine_stalker]

One last step remains before you can step into our magical world, forgetting your mortgage, your car loan, and your family commitments. Just pick up form number 34C-XCVII from your local tax office, and let the fun begin. The are only two things that are certain in MMO's of the future: Ganks and taxes.

Unemployment and Social Security Benefits?

[gaspar ilom]

If it's taxable -- or otherwise treated like "income" -- does it then get treated like any other "work:"

When I loose my loot, is that now a write-off? (is it like investment depreciation, or a gambling loss?)

Am I running a "business" -- and can I hire in-game "employees" ?

When my skills decline, can I consider myself unemployed?

Can I avail myself of anti-discrimination laws?

Can I retire and collect social security?

When you think about it, it's pretty absurd.

Re:Unemployment and Social Security Benefits?

[LurkerXXX]

Am I running a "business" -- and can I hire in-game "employees" ?

Yes, but be careful not to hire too many. If you hire more than 14, you will have to provide them with virtual health insurance. And the rates on virtual disability insurance are just crazy. All that hacking and slashing...

Tax free.

[GodInHell]

Uhm.. since the internet is already a tax free zone... no.

Corporate CMA != change in tax policies.

-GiH

Yes! Sim CPA

[FlopEJoe]

Now I can implement an idea I've had back when the Sim-X and Y-Tycoon games came out... Sim CPA. You too can play in the exciting CPA world. Manage end of the quarter forms for online players in this RTS game. Bonus points for keeping two sets of books and making a little on the side. But don't get caught or you're character will be stuck in virtual jail.

Hmm

[Spykk]

I'm not sure how they can do this. MMORPGs generaly have a clause in the EULA stating that all virtual goods belong to them and have no intrinsic value. If the government decides that they do in fact have value, what happens when a server goes down just after you recieved a valuable item and you are rolled back to before you got it? Can you sue the game's owner for the value of the item? Can these games survive if a hardware failure could result in massive lawsuits against them?

Game-changer for Grey/Black RMT Markets?

[miller60]

This is a key point. We're starting to see the first few legal cases concerning property and ownership in virtual worlds, which may create precedents about who owns what and what property rights players can expect. There's really a two-tier economy at the moment, as some worlds allow/encourage ownership and real money trading (Second Life, some EQII servers) and appear to be operating under different rules than worlds in which the ToS bans asset trading, which then moves to grey/black markets. It'll be inte

I'm not paying a dime for my WoW character...

[A Name Similar to Di]

As blizzard has made incredibly clear, all characters, items, and gold, belong to them, and anyone buying/selling gold/characters/items is breaking the policy.

In reality, I think that all MMOs /need/ to make the same claims as blizzard and fight to protect them. Once the IRS starts to tax virtual assets, what's next? If I get someone killed in game can I now be sued for financial hardship? IANAL, but it seems like I would have effectively cost them some of their personal assets. How about Eve and all o

Taxation...boundary between RW & virtual money

[WyrdOne]

If you are deriving real world cash from these transactions, likely you are already being taxed on it. I find it a non-issue.

It would be all but impossible to tax a virtual economy of a game system. Why? Because the rules of the economics within the game world are not static. The developers (who are not governmental bodies at all) can change that economy or rule at whim. Raise the drop rate of X item here, reduce the spawn rate of Y item there and it plays havok with the economy until it restabilizes. Also

No Taxation without Representation!

[mmdog]

Thrall for Senate from the great state of Durotar!

Re:

[zotz]

"No Taxation without Representation!"

That ideal is already so far gone it is not funny. Think of all the taxes now that people who can't vote have to pay.

all the best,

drew

Virtual Representation...

[__aaclcg7560]

Let the politician show up in the game world so we can virtually do the one thing we can't do in real life: Hang 'em high!

How can Game Currency be taxable?

[Gonarat]

If I understand the article correctly, assets gained in a game would be taxable, even if they are never converted into "real" money. If I had a Second Life business that made 1 million Linden Dollars in a year, then I would be taxed at whatever the U.S. Dollar to Linden Dollar rate is, even if I never take the "money" out of Second Life. To me this is ridiculous -- that would be like me being required to pay taxes on properties won in a Monopoly Game. I may own the whole board, but that does not translate to any wealth in real life.

A better example might be the stock market. Stock in XYZ company that I bought for $10,000 may be worth $100,000 today, but I am only taxed on those "gains" if I sell the stock. After all, who is to say that the stock won't be worth $5,000, or even nothing if the company goes belly up. I think the same should apply with game worlds -- as long as the "money" stays in the game world it should not be taxable, but once the "money" is converted to real money or "real" goods and services, then tax is due. After all, if I have a million Linden dollars in Second Life and the Linden would go out of business (not saying that this is likely, but just as an example), then my million Linden dollars would be a valuable as Enron stock.

I can understand taxing businesses in these worlds that make "real" money, but I think it is a real slippery slope taxing "game" money made in an online world unless the profits are taken outside of the game world.

U.S.?

[EMeta]

The biggest hurdle I see is that (of course) individuall countries can only tax people residing there or making sales there. And the game companies have no business (and certainly needn't) find out where people are playing from. (Ignoring for the moment region-centric consoles.) If servers in some said country are being taxed internally through the system, then such transactions will move to international servers--really, what big games have only servers in one country?

The problem boils down to this:

...err...WTF?

[Donniedarkness]

I can see them taxing the monthly fees...something players actually PAY for, but taxing in-game assets? Not many people I know would be willing to do that. Also, how would they determine what something is worth? It'll never pass.

Other Laws

[Joe The Dragon]

I don't play these games right now but I do see one good thing coming form this is a big blow to ELUA's as this will likely give in game items cash value and give gamers property rights.
But this can also lead to real world jail time and other legal cases and fines for doing things in game like killing a player and taking his things, land, property, gold, cash, and so on.

Second Life lets people make and run gambling machines with no central authority verifying the workings of the games and that may end up ma

Real taxes for online gaming...

[roscocoltran]

THAT makes those games more realistic than even the latest 3D engines!

Way to kill an industry...

[Maul]

Having to pay taxes on every platinum (or whatever the currency is in your game) a virtual character earns? That is going to destroy the MMORPG industry. Or are MMOs going to have to replace anything that resembles currency with a barter system or something else that won't look like money to the morons in the government?

I guess we'll just have to stick to single player games, though I wouldn't be surprised if I get a tax assessment for all of the rupees that I've gotten in Twilight Princess soon, at the r

Re:

[Joe The Dragon]

single player games should be ok as people don't sell in game stuff form them like they do with MMO games.

We knew it was coming

[Programmer_In_Traini]

It was pretty obvious it was coming, where there's money to be made, there are taxes to be paid (so others can reap some of your benefits too).

There's no such things as free money.

Re:

[mr_mischief]

There's no such thing as a Linden Dollar in the real world, either. It's a game. The Matrix may have you, but I do not believe that Monopoly money is taxable in U.S. currency.

hmmm...

[aliendisaster]

I wonder if I can get welfare for my lvl 2 priest?

Crap!

[Rob T Firefly]

It's only a matter of time before they find out about the millions I made in "Wall Street Kid" for the NES [seanbaby.com] all those years ago. When's the next virtual flight to virtual Brazil?

What about deducting the cost of gaming

[StarkII]

I would have to assume that if they can tax you for virtual earning, you should be able to deduct virtual expenses. If this is considered a viable economy, your monthly subscription fee should be deductable. I would assume that if this moves forward, there is far more money spent on the game than is ever earned in it. It seems like it would be an overall loss for the government.

Let me get this straight

[Reapman]

Little 8 year old Johnny, who plays a game, who's virtual assets are in fact owned by the company that runs the MMO, has to pay tax, on stuff he doesn't own? With no physical attributes?

Last I remember, most MMO's it's against the ToS to trade for real money, so doesn't this law go against the ToS?

Fine tax me, and watch the mmo market burn. I ain't payin tax on stuff I don't own.

Let them sell then

[Orange Crush]

If the IRS really wants to tax these virtual goods, they should explicitly allow for their sale. i.e. have a Blizzard-sanctioned marketplace to trade virtual goods for real money, document the transaction, and send the necessary paperwork (1099, i'd guess). People who earn their own stuff don't have to worry about it, as only the real-currency sale is relevant.

The article is a Troll

[Christianfreak]

BS. Nowhere in the article does it say anything about the IRS actually trying to do this. No its this Miller guy (who we've heard from before) who insists that its going to happen "real soon now" (tm). Um no. If such a thing really did come to pass it would be held up in the courts for years because the game companies would fight it. Why? Because taxes already cost a lot of time and money. For something that is so overtly illegal for the government to do, they'd be stupid not to fight it.

This Miller guy is nothing but a troll ... and CNET fed him.

Death of Taxes

[Doc Ruby]

Taxes pay for the services we consume that the government provides. They of course pay for lots more services we don't consume, and lots of people consume services they underpay in taxes. But most of us consume lots of services, including military/security/justice services, infrastructure investment, education, that might directly serve our neighbors, but thereby serve us by stabilizing and improving the society in which we live.

So taxes on virtual goods are a way for the government to fund its operations that enable real players to spend time inline. While in the virtual world it might seem like we're not consuming the real world services, but of course we are, though we don't notice. Those have to be paid for.

Though taxing income is a terrible way to pay, compared to others. I prefer a sales tax on all sales transaction. Somewhat lower rates for wholesale (goods resold), to keep transaction costs low and the economy less frictiony. Total exemption for some subsidized goods to protect the poor (and ensure people aren't penalized for not being poor). Like no taxes on raw food, raw cloth, the lowest percentile expenses on public transportation, primary shelter and energy consumed there, and essential healthcare including nutrition and prevention. And a very low rate on pure minority equity transfers, like 1 or 0.01% the full rate on stock trades, unless transferring control of the corporation. That would encourage people to save rather than consume unnecessarily. Which offers more money for investment, by them or by their banks. And actually correlates taxation amounts to the amount of benefit people derive from the country, beyond the crudest basic protections that everyone should have. While making the tax collectable from a much smaller population of vendors, who already keep transaction records without increasing the costs of reporting, and who are much more controllable with the threat of interfering with their business than are the hundreds of millions of humans, many of whom cheat on income taxes. And without invading the privacy of every American, collecting from the aggregate without tying transactions to identites without a court order.

I'd say that since our $12T GDP currently spends about $4T annually on Federal, state and various local scopes of taxation, we could collect about 33% total tax, probably 25% Federal and 8% state/local. States/localities could of course change their own rates. The increased efficiency of the system, including shrinking the leviathan IRS while collecting more of what's due (on a monthly/quarterly basis, rather than annually), would probably afford lowered rates, maybe down to 15-20% Federal. Which extra money would be available for investment. While welfare and other social subsidy expenses could be shrunk, at least the administration which currently processes their income tax as a noncollectable exception, rather than just not bothering with them at all. And those rates balance the budget, without debt, while paying off the huge outstanding debt we've created the past 230 years. Though the vast majority of that debt has been spent the past 6 years, while (not ironically) cutting taxes on those most able to pay them, who benefit the most from our country's expenses.

Note that I'm talking about ripping out the income tax by its roots, and totally replacing it with a simple sales tax.

In virtual worlds, the taxes would be collected only on real money taken in exchange for services. The arbitrary (and impossibly complicated) basis for taxation today, "pay what we say approximates what we spend, or go to jail and/or surrender your property", cannot deal with anything like our modern economy. After military spending, we spend more on debt service than on any other government service, clear demonstration that our revenue system is totally disconnected from our economy and government, while remaining its most essential core.

The US economy has now changed to one unrecognizable to the economists who institued the income tax less than a century ago. It's time to revolutionize the government's income to free the rest of the economy to exploit the opportunities while solving the problems of this new age.

How about a fucktard tax?

[0123456]

With idiotic ideas like this around, the IRS would be raking in trillions...

FUD FUD and more FUD

[argStyopa]

Never ending FUD.

Can I please ask the Slashdot editors to READ THE FRIGGING STORIES before passing this on as a reasonable summary of the article?

Firstly, it's nowhere suggested that this is "inevitable". IRS interest in the subject is "a matter of time" but the taxes are not. In fact, this could be a Pandora's box for tax authorities, because it will open a flood of issues that have heretofore been somewhat ignored such as
a) what right does the government have to interfere (that is, tax) a transaction between two individuals
b) trades of in-kind goods are frequently unvalued. If I trade you a $4 chicken for a $6 goose, it's clear that legally (only), I owe the government taxes on my $2 profit. But in real life, things aren't born with price tags attached; if I trade you a chicken for your goose, who's to say who 'gained value' from the transaction? The insubstantiality of the concept of objective value is problematic, exponentially so with 'virtual' goods.

Secondly, from TFA:
"LaPiana said that there is little question that the transfer of such assets could be taxable, since it is property. However, he did say that the taxes would accrue only if the total value of the estate's assets exceeded the limit set by the state in which the deceased had lived. In most cases, he said, that amount is $2 million, though some states, like New York and New Jersey, have lower limits."

So realistically we're talking not about a tax on virtual assets, as the stupid summary presents, but a tax on the REAL WORLD PROFIT made from the sale of such assets. And I'd presume that IF the IRS is claiming that profit you made is personal income, then you can immediately apply (and get) deductions for the
- cost of the computer
- costs of the internet connection
- cost of the game
- costs of the monthly access fee.

I can't see that even the IRS would see the cost/benefit of chasing 99.999% of gamers who aren't going to actually see a profit from this sort of transaction. Or is the IRS working in China now?

I understand that "OMFG THEY ARE GOING TO TAX MY WARCRAFT ACCOUNT!!!!" is the FUD that everyone seems to like spreading. Isn't it up to tech-literate sites like /. to KILL FUD where they can, rather than incite it?

I realize this seems counterintuitive...

[Gorm the DBA]

But if I was a Gold Seller on an MMORPG, I'd very much be in favor of the IRS declaring that the gold was my property and I was to be taxed on it.

Why?

Because then the government has declared it's *mine*, therefore despite any statements in the EULA or elsewhere, the Developers of the Game could not arbitrarily close my account for gold selling. They could not fix bugs in the game that I was exploiting to get more gold faster. They couldn't do anything to prevent my business from operating, or else I'd have a nice little conversion of property suit, or restraint of trade, or even an Anti-Trust suit.

The taxation rate would be consistent, so I could factor it into my pricing and business plan and still remain quite profitable. And it would be completely legal and they could do nothing to stop me.

So, if I were Blizzard, Turbine, or any other game maker attempting to control the Gold Reselling market, I would fight this tooth and nail and claw and frostshock.

What's new here?

[mmalove]

Ok - economists and gaming blogs have speculated on the possibility of virtual assets becoming taxable someday for at least a year now. What we have here is another economist (read professional guesser) telling us it's inevitable. There's absolutely no references to movement in Congress on the subject, or refutation to the rebuttal that all MMORPG assets belong at all times to the parent company, therefore no taxable exchange can occur. Making money on ebay is one thing - it's a tangible, defined monetary gain with a clear record of when and how much - and it doesn't matter how you earned the money, you earned money. Trying to claim money is made in an MMORPG at the time a dragon is slain is a myth to stir up contraversy. I challenge any representative of the United States Congess to stand before his peers and make the claim (with video FRAPS evidence as backup) that as the raid leader gives someone a purple shiny sword in a video game, their real world wealth has increased and they need to be taxed.

So when a game goes down I can report a loss?

[Maxo-Texas]

Earth & Beyond was shut down.

Do I get to report lost income on my lost starship? It was top of the line and fully upgraded.

How do you determine fair value for obtaining an epic weapon?

Inflation and deflation in online games is horrific. One day I might have a worthless blue diamond. The next, they introduce a new recipe that uses blue diamonds and it is suddenly worth about 25 dollars. A month later, everyone has farmed them so heavily that they are only worth about 25 cents again.

I don't see how they are going to get a handle on these things except at the point of transfer to real dollars.

If second life goes out of favor then that million dollars of virtual real estate could become worthless overnight.

Not without your SSN

[klossner]

The form that reports non-employee income would be one of the Form 1099s, such as http://www.irs.gov/pub/irs-pdf/f1099msc.pdf [irs.gov]. It cannot be filed without a taxpayer information number, which for most of us in the US is our social security number.

Can you imagine somebody handing over their SSN when buying a game?

BIG money laundering issue here.

[CFD339]

Even more important than the income taxation issues, are the money transfer ones.

When money changes hands, banks and other institutions must report on both sides of the transaction. In game, at present, that doesn't happen. In could transfer in-game assets to someone as payment. In simplistic sense, I could hand "dirty" cash to someone and they could pay me in "game" assets. When I sell those assets, I now have "clean" money. The the cash could then be paid in small quantities to individuals to transfer smaller sets of funds back to the main player as in-game assets.

You could complicate that and hide it behind a few more cutouts, but that's the essential way to do money laundering like this. Of course, it could also be done as a massive number of people getting cash (say, $200 each) to buy in game assets then each transfer those assets to a counterpart in a similar pool of people at the far end, who sell the assets and now have the cash. They in turn buy other assets and repeat the transaction in reverse to a different member of the original pool and you close the circle. The more 'steps' it takes in the process, the harder to track.

You can (and people do) do the same thing in real life but the assets themselves either don't exist (which can be ultimately caught) or else are expensive and cumbersome enough to make the friction expensive. In virtual worlds it can be scripted and kept purposely obscured by a random seeming level of interaction among a large volume of players.

If these economies are going to be getting "real" then the controls on them will have to as well.

Re:

[PreacherTom]

Indeed. All this will do is drive the servers and corporations outside of the U.S. jurisdiction. I doubt the kind of legislation that decimated online poker will go through as easily in this instance. It's not such a plum to the religious right.

Re:

[voice_of_all_reason]

They'll just pass laws prohibiting US-based credit card companies from dealing with those places. If they can't have the tax, they'll make sure you can't still enjoy the game.

Sigh... this is a mis-understanding of tax law...

[sirwired]

If you actually read tax cases and full court decisions, you will understand that all this tax protestor crap is just gibberish caused by taking tiny quotes from old tax decisions, combining them with odd semantic arguments, and trying to weave them together into some incoherent whole that flies in the face of common sense.

Basically, the term "Direct" tax does not mean what you think it means. A "direct" tax is a tax on property, an "indirect" tax is a tax on commerce, consumption or trade. This is backed up by the full text of several Supreme court decisions and The Federalist papers, which may be relied upon to help understand the frame of mind, and/or terminology of, the authors of the constitution. (Some district courts didn't understand this in the text of their decisions, but the Supreme Court decisions override those in any case.)

"Direct" does not refer to how the tax is collected. (From a taxpayer directly vs. paid for by somebody else.) That would be stupid to even mention in the constitution, as the collection method of a tax is rather irrelevant when it comes to whether or not it is legal.

As far as the "The 16th amendment created no new power to tax."... Using this as a reason to say that income taxes are unconsitutional is silly in the extreme. The 16th amendment clearly states that income, from whatever source derived" is taxable. If the 16th amendment created "no new power to tax", and it plainly states that income is taxable, it would imply that the income tax was constitutional before, and after, the 16th amdendment was ratified.

Google for "Tax Protestor FAQ" for full details.

SirWired

Re:Sigh... this is a mis-understanding of tax law.

[scorp1us]

BTW, I've read that FAQ, and I've done battle with Mr. Evans many times. He is the one citing irrelevant cases. Its absurd. I read these cases for hours, only to find that his cite doesn't even back up what he claims. Its good practice with learning you can'tr trust anyone and you have to read for yourself.

Download this file: http://ctc.schtuff.com/taxusnot_repository_zip [schtuff.com] (I had to add .zip to the file I downloaded)
And extract the FriviouslArgumentsRefusted20050314.doc file, and read away.

Re:

[mjs0]

Thats like taxing stolen goods..........

Yes, yes it is, exactly.

From the IRS page on Narcotic-Related Investigations...

When the Internal Revenue Service astounded Public Enemy Number 1, Alphonse Capone by obtaining a conviction for tax evasion and demanding millions of dollars in back taxes, Capone said, "They can't collect legal taxes from illegal money." But it's really pretty simple: No matter what the source of income -- all income is taxable.

Re:

[rrhal]

Those are examples of realizing tangable assets in the real world.

I would think that if I exchange a small fortune of in-game currency for a +7 sword of ogre evisceration that I still haven't realized anything in the real world. I'm merely engaging in my hobby.