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Virtual Economies Attract Real-World Tax Attention

kdawson posted more than 7 years ago | from the tax-haven-in-Second-Life dept.

247

doug141 writes to point out a Reuters story on the attention tax authorities are beginning to focus on virtual economies. From the article: "Users of online worlds such as Second Life and World of Warcraft transact millions of dollars worth of virtual goods and services every day... People who cash out of virtual economies by converting their assets into real-world currencies are required to report their incomes to the U.S. Internal Revenue Service or the tax authority where they live in the real world... 'Right now we're at the preliminary stages of looking at the issue and what kind of public policy questions virtual economies raise — taxes, barter exchanges, property and wealth,' said Dan Miller, senior economist for the Joint Economic Committee of the U.S. Congress."

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Finally. (3, Insightful)

Hubbell (850646) | more than 7 years ago | (#16455403)

I'm surprised this wasn't done years ago when people were making real money off of Ultima Online and Asheron's Call. Good AC accounts, like Animal the first level 126 Battlemage which went for $5,000, were going for thousands during it's prime and even a year or two afterwards.

Re:Finally. (5, Interesting)

SatanicPuppy (611928) | more than 7 years ago | (#16455671)

What would the tax be, exactly? For the most part, most states don't require sales tax on internet purchases. And if you sell accounts for more than $400 bucks, then you should be reporting that income to the IRS anyway, same as with any other income.

I don't see any need for a special case. You make money off it, you're supposed to declare that money and pay taxes on it. Goes without saying that most people don't, but that's just an enforcement issue.

Re:Finally. (3, Informative)

Anonymous Cow herd (2036) | more than 7 years ago | (#16456345)

What would the tax be, exactly? For the most part, most states don't require sales tax on internet purchases.

Most states also have what are known as "Use Taxes". Wiki here: http://en.wikipedia.org/wiki/Use_Tax [wikipedia.org]

Re:Finally. (2, Insightful)

truthsearch (249536) | more than 7 years ago | (#16456487)

But enforcement is the issue they're trying to tackle. Enforcement is basically handled by either withholding or reporting (e.g. form 1099). It sounds like these virtual world companies aren't reporting (we definitely know they're not withholding). So the government will either tax the virtual world and trading companies or force them to report payouts. Don't be surprised if in the next few years they ask for your SSN. I recommend getting an alternate tax ID if they do enforce reporting and you still want to make transactions.

Ebay is the key (2, Interesting)

ackthpt (218170) | more than 7 years ago | (#16455749)

I'm surprised this wasn't done years ago when people were making real money off of Ultima Online and Asheron's Call. Good AC accounts, like Animal the first level 126 Battlemage which went for $5,000, were going for thousands during it's prime and even a year or two afterwards.

You, nor many others are really getting it. They're not going to tax your stuff in game, they're going to figure out how to shackle eBay with a scheme to report all your personal sales to the IRS, then tax you on them. Won't matter whether you're turning a profit or not, they'll want a cut of it.

Re:Ebay is the key (1)

contrar1an (976880) | more than 7 years ago | (#16455955)

>You, nor many others are really getting it. They're not going to tax your stuff in game

Why not? If the stuff has real world value, then trading it in the virtual world is equivalent to a real-world exchange of value.

It isn't exactly the same thing, but: if I have say baseball cards, and I trade them to you for some other baseball cards, we are technically required to pay taxes based on the fair market value of the transaction. It isn't difficult to argue that the same thing should apply with WOW gizmos.

Btw, I think it's crap. But, I think it will end up being so.

Re:Ebay is the key (4, Informative)

Free_Meson (706323) | more than 7 years ago | (#16456457)

When dealing with illiquid assets (such as real estate or, in this case, baseball cards) you are only required to recognize and pay taxes on income when you convert the illiquid asset into cash or a cash equivalent. When you trade illiquid assets, though, you keep your original basis for tax purposes. If you paid a nickel for your baseball card and I paid $500 for mine, we can swap without being taxed but when you sell your card you will be taxed on the sale price less your original basis (.05) as will I, even though the card you're selling was bought for $500 and the card I'm selling was bought for $.05.

There's one cool tax consequence of this, btw. As a taxpayer, you can allocate basis when you receive both cash and an illiquid asset in exchange for your own asset. So, if I buy my card for $500 and you bought yours for $.05, I can sell you my card for $500 plus your card and not owe any taxes until I sell your card. For baseball cards that's small potatos, but for things like real estate it can make a huge difference in whether a transaction is profitable or not.

so does this mean (1)

jigjigga (903943) | more than 7 years ago | (#16455439)

there will be a new profession for doing taxes? I bet it would make a lot more money than fishing.

yay! (1)

sarathmenon (751376) | more than 7 years ago | (#16455453)

I can't wait to pay my tax in WoW gold.

Re:yay! (2, Insightful)

ackthpt (218170) | more than 7 years ago | (#16455683)

I can't wait to pay my tax in WoW gold.

Don't mention Gold. Tangible or not, it just gets Congress excited.

You know the paper dollars in your pocket are not backed by any gold or silver, right?

Re:yay! (1)

RichMan (8097) | more than 7 years ago | (#16455871)

I can't wait for all my WoW repair bills to be tax deductable.

If earning WoW gold is income,
    then expenses incured must be deductable.

Comming soon:
    Tax Loophole investment gaming. Play the game for 10 minutes and get a $10k tax deduction.

Re:yay! (1)

devnull17 (592326) | more than 7 years ago | (#16456083)

If you're playing WoW, how do you have a job or wages for them tax you on?

Congress strikes again (0)

aafiske (243836) | more than 7 years ago | (#16455463)

I think I speak for everyone who's ever played a MMORPG:

Oh shit.

Time to get the popcorn and beer and watch how badly Congress misses the point this time. And hope it doesn't cost me a 50% tax on all subscription fees.

Re:Congress strikes again (1)

sholden (12227) | more than 7 years ago | (#16455517)

You pay your subscriptions right?

Hence it would be pretty hard to interprete them as income for you...

Re:Congress strikes again (1)

Shajenko42 (627901) | more than 7 years ago | (#16455779)

I wonder if you could create a business and file your monthly subscription fee as an expense.

Re:Congress strikes again (2, Insightful)

CerebusUS (21051) | more than 7 years ago | (#16456145)

Well, that's exactly what a lot of people are missing.

This is no different than other forms of income, and income is taxable.

By great coincedence, the money you spend to allow you to create that income is allowed to be deducted from the earnings to offset the total tax paid.

If you make $20K /month in Second Life, hell yes you should be required to pay taxes on that. But you'll be able to deduct the cost of your internet access, computer depreciation, office space rental, etc. from the gross income.

The IRS isn't going to worry about people making $20-100 / month online doing this stuff... they are going to go after the bigger fish.

As an aside, most people know that the money you win gambling is taxable, typically at a fairly high rate. Most people I've talked to, however, didn't realize that if you keep your reciepts from when you lose, you can mark that as an expense against your winnings to reduce that tax.

All this being said, IANATL, so check with a specialist :-)

Re:Congress strikes again (3, Insightful)

SatanicPuppy (611928) | more than 7 years ago | (#16455787)

They don't give a damn about how much WoW gold you collect, but they DO care about how much that gold brings you in real money when you sell it on eBay.

Subscription fees are an obvious tax deduction, but the fact remains if you're making more than a minimum amount on it, and you live in the US (don't know about other countries), you owe taxes on it.

What I'd expect to see out of this is companies like IGE being forced to be more open about their cash flow, to make it easier to find people who are not paying their taxes.

Re:Congress strikes again (1)

sholden (12227) | more than 7 years ago | (#16456141)

Of course but that's true with everything and isn't a surprise. If you win money in a game a golf you're supposed to pay tax on that too...

If you sell some cocaine to someone you're supposed to pay tax on that too...

In the was of WoW I would suspect most of the transaction take place externally - one person sends another person a check and then some gold gets transferred in the game. Of course if the IRS can get details on people who seem to do a lot of transfers then they can do an audit and try and find all that undeclared income. (just like they'd love to do with all those offshore online casinos.)

Re:Congress strikes again (5, Informative)

generic-man (33649) | more than 7 years ago | (#16455557)

News flash: When you make money, you owe income tax on it. Doesn't matter if the money comes from real-world work, virtual-world work, services, corporate gifts, [washingtonpost.com] or even illegal activity. [findarticles.com] The second you get U.S. dollars for your work, the IRS gets to claim a chunk of them.

Re:Congress strikes again (2, Funny)

IAmTheDave (746256) | more than 7 years ago | (#16455781)

"Gimme gimme gimme gimme gimme gimme..." "But I um, actually stole this money off of that old lady that I just shot in the skull..." "28% bitch! Gimme gimme gimme gimme gimme gimme..."

Re:Congress strikes again (1)

The Dalex (996138) | more than 7 years ago | (#16455817)

The article is discussing the idea that in-game income should be taxed, not just when items or currency are converted to real-world money. They are basically saying that if you get loot from a monster and sell it at the auction house for in-game gold, you could be taxed in-game.

Re:Congress strikes again (1)

Amouth (879122) | more than 7 years ago | (#16456161)

i think the Treasuary department is just looking for a reason to pay WoW on the job

Re:Congress strikes again (1)

jfengel (409917) | more than 7 years ago | (#16455873)

True, but you usually have to materialize that money first. Capital gains aren't taxed until you sell the object. (That's for income taxes; property taxes are different.)

I can see the IRS taxing the income when you convert quatloos or whatever into dollars and have them transferred into a bank account, but trying to tax virtual money sounds like an administrative nightmare.

In theory one can use the barter system and step into massive gray area with the IRS. They usually ignore it simply because it would be too much work. Trading virtual goods for virtual dollars would probably be treated as barter, on which you DO owe taxes (under schedule C, business income).

Re:Congress strikes again (1)

hustlebird (908138) | more than 7 years ago | (#16455959)

But this then raises the issue, if i trade some weapon that i could sell in real life for say $50, for a piece that is worth $100 in real life, even though no real money traded, will i be expected to pay the differance in taxes? Or what if i sold it in the game for a bunch of online currency? How do you decide what gets taxed and what doesn't?

Re:Congress strikes again (1, Informative)

Anonymous Coward | more than 7 years ago | (#16456109)

On the plus side, your WoW account fees would become tax deductable as a business expense.

Re:Congress strikes again (0)

Anonymous Coward | more than 7 years ago | (#16455619)

What are you talking about? I assumed that any money coming into government, no matter where it comes from, is a good thing by default. It's all just one big charity, right? The more money coming into government, the better, right? Please, somebody reassure me.

Re:Congress strikes again (1)

nine-times (778537) | more than 7 years ago | (#16455659)

Wouldn't it be more likely to go the other way? If you're making money off of MMORPG, then I would think the subscriptions could arguably be a "business expense", and hence you would get a tax break.

Deduct it (0)

Anonymous Coward | more than 7 years ago | (#16456051)

Assuming you meet the minimum level for all your costs, you can deduct your subscription fees from your taxable earnings as a business expense.

It's exactly the same as real estate agents deducting the cost of their luxury cars on their tax returns because more than 50% of their mileage is business related.

Well (4, Funny)

Kelz (611260) | more than 7 years ago | (#16455485)

Given that it is against the Terms of Service in WoW to exchange in-game currency or items for real life currency or items, I can't see that there would be any legal standing here.

Also, I believe Second Life's ToS [secondlife.com] explicitely states that Linden dollars have no legal value, also trumping any sort of tax law.

But then, neither was the income tax...

Re:Well (4, Insightful)

drsquare (530038) | more than 7 years ago | (#16455521)

Whether the game manufacturers say it has legal value or not, if you cash in, that's income, and you have to pay tax on it.

Not True (1)

Shihar (153932) | more than 7 years ago | (#16455843)

Whether the game manufacturers say it has legal value or not, if you cash in, that's income, and you have to pay tax on it.

That simply is not true. You don't have to pay any income taxes on it if they don't know about it. Saying that you must pay taxes is like saying that you can't buy drugs. Sure you can. You just take some level of risk in doing so.

Re:Not True (3, Insightful)

Maxo-Texas (864189) | more than 7 years ago | (#16455919)

The "level of risk" you speak of is "the risk of punishment including fines and prison time for not paying taxes that the government requires you to pay on income". You implictly acknowledge that you can be punished for failure to pay in your own post. ironic, no?

So , actually it simply is true.

If you sell drugs, you are required to pay taxes on the income.

Remember, it was good enough for the original mob Al Capone, it's certainly good enough for you with the loot you got off your MOB.

Re:Not True (1)

ultranova (717540) | more than 7 years ago | (#16456217)

Remember, it was good enough for the original mob Al Capone, it's certainly good enough for you with the loot you got off your MOB.

Al Capone wasn't equipped with Godslayer of Hit Points ;).

yeah sure .... (1)

taniwha (70410) | more than 7 years ago | (#16456019)

tell it to Al Capone

Re:Well (0)

Anonymous Coward | more than 7 years ago | (#16456099)

it is not that simple
this is a legal can of worms that is going to explode

in order for the IRS to tax income from selling of virtual assets they have to assign you ownership of said items.
thus overturning the EULA, and now people have real life asset rights on virtual property.

granted our legal system is corrupt, but I doubt any judge would rule.
No you have not rights on the property.
But yes we can tax you on it.

Re:Well (1)

The MAZZTer (911996) | more than 7 years ago | (#16455527)

I think the US government overrides a small corporation's terms of service.

Legal, or not... (1)

Nick Driver (238034) | more than 7 years ago | (#16455631)

...income made in the USA is subject to federal income tax. Even your friendly local crack dealer technically owes income tax on his illegal drug profits.

Re:Well (1)

spyrochaete (707033) | more than 7 years ago | (#16455717)

Since Blizzard doesn't engage in any in-game merchandise transactions for real money, I don't think they're the ones the US Government would be trying to tax. Blizzard pays taxes on their income and that amount is reflected in the subscription fees.

So who is the government trying to tax? Offshore gold farmers? One-off eBay sales? Who, of the relatively few Americans who do this, would even claim this as income?

This seems like an issue best left to gaming companies anyway. It's not a developer's best interest to host an economy-based online game since the richest people, in-game and in real life, can defeat the poorer players with gear alone. That's why skill-based games like Guild Wars are so much better. In Guild Wars, farming is all but nonexistant, and whenever player elitism starts to rear its head they host a "triple chance of the best gear dropping" weekend to level the playing field.

Re:Well (1, Informative)

Anonymous Coward | more than 7 years ago | (#16456021)

It's not a developer's best interest to host an economy-based online game since the richest people, in-game and in real life, can defeat the poorer players with gear alone.

Sure it is, they make money off the rich people by selling them things. Lots of Korean companies seem to do rather well with that model. Second Life also seems to do well with such a model. Face it, if someone spend more money than you on a game they are worth more to a developer than you all other factors equal.

Re:Well (1)

revlayle (964221) | more than 7 years ago | (#16455821)

True, Linden Dollars HAVE no legal value themselves. However, Linden Labs/Second Life has a page stating the exchange rate for a Linden Dollar to some other real-world currency. The exchange rate is updated daily and determines how many, for example, L$ (the shortcut for a Linden Dollar, IIRC) a user can get for a US dollar.... AND VICE VERSA. If a user has thousands of L$ in their Second Life account, they can exchange that for a real-world currency, via a check or a deposit into a PayPal account (other methods do exists I believe, I just don't what they are, my wife played for a couple months then cashed out and quit playing).

Re:Well (1)

jasmak (1007287) | more than 7 years ago | (#16456057)

It is also illegal to sell marijuana but technically you are still supposed to pay taxes on them. These taxes were long ago found to just be a trap(i don't know who would be that dumb), but they still exist.

Gov't Regulation (2, Funny)

DrWho520 (655973) | more than 7 years ago | (#16455505)

Dear God, no! Not that! Engineers will never be able to keep up with the Alchemist or Taylor lobbiests!

Losses (3, Funny)

mugnyte (203225) | more than 7 years ago | (#16455523)


  Any time I'm due to pay taxes, I'm going to claim a loss on my virtual accounts to balance it out. Wheee!

Re:Losses (3, Insightful)

Morphine007 (207082) | more than 7 years ago | (#16455837)

yeah, seriously. If you "invested", say, $10,000 worth of online currency into, oh... I dunno... this [slashdot.org] does that mean you can claim that online currency's worth as a loss?

To answer my own question: no

Now for a better question: suppose you first bought that $10,000 worth of online currency and "invested" it into that EVE Online ISK scam and lost it. Can you then claim your $10,000 investment as a loss? Since you invested the money into a business (some might argue this, but I'd argue right back that the EVE Bank had more chance of succeeding than some dot coms), with the expectation that it would make a profit (online) which you could then sell for real money (and hence pay tax on), but instead lost it?

I mean, just how different are these two scenarios:

  • you invest real money into a business which makes a product, this business fails and you claim a loss
  • you invest real money into a virtual business which makes a product, this business fails and you claim a loss

These are the reverse of the two scenarios the IRS wants to capitalize on:

  • you invest real money into a business which makes a product, it succeeds, you make money and pay tax on it
  • you invest real money into a virtual business which makes a product, it succeeds, you make virtual money which you exchange for real money and pay tax on it

Where does the line get drawn?

Re:Losses (0)

sacremon (244448) | more than 7 years ago | (#16456213)

Probably in a similar fashion as gambling. The IRS requires you to pay taxes on gambling winnings, but you cannot claim a loss for gambling losses. Technically it is (IIRC) to the point of: You go to a casino and win $600 at the blackjack table, but then lose $500 of it as you continue to play. You owe taxes on the $600 you won, regardless of the fact that you proceded to lose most of it.

Actually (1)

ad0gg (594412) | more than 7 years ago | (#16455963)

If they consider selling wow accounts as capital gains, you could factor in costs per month. So if i sold a level 60 character for $300 but it took you a year to create him and factoring $20 month charge. Your taxes would be on 300 - $20 * 12= $60. Oh wait we are talking about the US tax code, you'll pay taxes $300 because the gamer community doesn't have enough money to bribe the politicians.

Holy crap it's the Grinch! (2, Insightful)

Deliveranc3 (629997) | more than 7 years ago | (#16455525)

Timmy: WOW a +2 Vorpal SWORD SWEET!

IRS: Hey Timmy...

This is increadible they are taking one of the LEASE PLEASANT ASPECTS OF REAL LIFE and imprinting it on the virtual world... for no reason, they can just tax the sale of the goods!

Re:Holy crap it's the Grinch! (0)

Anonymous Coward | more than 7 years ago | (#16455585)

Let's try this again -- they're taxing *real* income, not in-game "income".

Re:Holy crap it's the Grinch! (1)

OverlordQ (264228) | more than 7 years ago | (#16455609)

They tax Income. Period. They dont hate MMORPGs, they just hate that some people are generated large revenue streams and not paying taxes on it.

If you had some other way of converting virtual items into real currency the IRS would tax that too if you made money off of it. They dont have a 'thing' for MMORPGs.

It could go both ways... (1)

krell (896769) | more than 7 years ago | (#16455627)

"This is increadible they are taking one of the LEASE PLEASANT ASPECTS OF REAL LIFE and imprinting it on the virtual world... for no reason, they can just tax the sale of the goods!"

Well, maybe we can have it go both ways. The real world might be improved by having guys dressed like Gimli scattered over the lawn killing rabbits. Or we can have crowd of griefers lurking at the key entrance points to all of our cities and towns (instead of just at Detroit like we have now). We could have real-life gold farmers making goods for real cheap in China.... oh wait.

Time for a new Classes and professions (5, Funny)

LiquidCoooled (634315) | more than 7 years ago | (#16455547)

Lawyers, Tax inspectors and accountants.

Myself, I am a level 47 beancounter, I defeated the IRS during a daring raid. Many of my friends died in this battle :(

Re:Time for a new Classes and professions (1)

argStyopa (232550) | more than 7 years ago | (#16455921)

I call BS.

You can't REALLY defeat the IRS; you can stun it, you can even perhaps get away - but nobody actually WINS except them. I don't care if you have the Sword of 1000 Truths.

Re:Time for a new Classes and professions (1)

jahudabudy (714731) | more than 7 years ago | (#16456183)

Actually, look into Scientology vs. IRS. As Scientology is now a tax-exempt church, I'd say they won...

It's all greed. (1)

krell (896769) | more than 7 years ago | (#16455559)

Congress is awash in money. The only problem is that they waste so much of it. Is there really a need to find new ways to rob us?

Another step towards blending games into reality (3, Insightful)

tont0r (868535) | more than 7 years ago | (#16455569)

I always felt there would come a time that if someone stole your 'virtual item', they could be arrested for stealing. This will be one more step towards reaching that goal. Because now this is something you would pay taxes on. But how does one decide how much to tax? Is it considered 'investing' if you decide to buy all the WoW gold you can and then raise the price of it when you resell it? Because in all reality, Blizzard can just change the amount of gold you have in their database and poof its gone. And how do you handle hacks and what not? Will that become illegal if you sold 'gold' that you achived through hacking?

Re:Another step towards blending games into realit (1)

daveo0331 (469843) | more than 7 years ago | (#16455855)

Wouldn't this have to depend on whether the "stealing" is considered part of the game? No one's ever been arrested for stealing the blinds in a poker game, or stealing 2nd base in the World Series. But if you hack into a WoW server and give yourself 10 million gold, that might be against some real world law...

Will we get to the point where real-world courts are asked to decide whether someone's action in an online game constitutes cheating? Who defines cheating?

I could see this ending up like card counting in blackjack, where there's no law against it, but if you do it and get caught you'll be banned by the people running the game.

Re:Another step towards blending games into realit (1)

Harmonious Botch (921977) | more than 7 years ago | (#16455891)

It's getting more real than we may like to contemplate.

These game writers are essentially bankers. They are printing virtual money with no real limits, and now there appears to be enough connections ( permitted or not ) to real money that they are increasing the real-world money supply ( M1 ). They are not, at the same time, increasing the supply of tangible real-world goods.

The increase in the money supply without a proportionate increase in real-world goods causes inflation. Inflation is usually followed by ( some say 'cured by' ) a collapse and long depression.

Re:Another step towards blending games into realit (1)

meringuoid (568297) | more than 7 years ago | (#16456171)

They are printing virtual money with no real limits, and now there appears to be enough connections ( permitted or not ) to real money that they are increasing the real-world money supply ( M1 ). They are not, at the same time, increasing the supply of tangible real-world goods. The increase in the money supply without a proportionate increase in real-world goods causes inflation.

Is a movie a tangible, real-world good? Or a song? Much of the American economy already depends on such things. I would say that a +5 Double Axe of Leetness is as much a real-world good as is a copy of Hit Me Baby One More Time. Any value that game money has is based solely on its ability to buy such things.

Re:Another step towards blending games into realit (1)

zotz (3951) | more than 7 years ago | (#16456397)

And are you to get arrested for murder when you kill their in game character? (Arrested out here in the real world that is...)

all the best,

drew
Come on slashdotters, you know you want to...
http://www.nanowrimo.org/modules/newbb/viewtopic.p hp?topic_id=4146&forum=171&post_id=61131#forumpost 61131 [nanowrimo.org]

A joke? (1)

flitty (981864) | more than 7 years ago | (#16455573)

This can't be real. Are the virtual tax collectors gonna lock me up in Orgimarr if I don't file my W-2's? Does every purchase I make count as a deduction, since my "job" is killing things, and everying I buy helps me kill things? Will a tailor have to start crafting receipts?

Re:A joke? (1, Funny)

Anonymous Coward | more than 7 years ago | (#16455765)

No, they'd probably lock you up for real. Oh, and it'll be really fun to think of just how many ways they will be able to not understand. "Your job is killing things...?...So...would you say you're a danger to society?" "No! It's a game!" "Ohhhh killing things is a game I see...."

Divide By Asshat Error, Please Reboot The Country

Re:A joke? (0)

Anonymous Coward | more than 7 years ago | (#16456209)

No, no, no, nothing like that. They can't touch stuff you own in-game. But if you sell your Pristine Hide of the Beast on eBay for $700 (of real money), you'll have to pay taxes on that.

You are all missing something: (2, Insightful)

Hubbell (850646) | more than 7 years ago | (#16455577)

They can only tax actual income made from the sale of said items ingame. They cannot put a value on virtual goods until the actual event of purchase/sale occurs using real money.

Re:You are all missing something: (1)

guruevi (827432) | more than 7 years ago | (#16456035)

So when I get paid my wages through bank transfer or something similar I shouldn't get taxed? All money these days is virtual and is just a number in a database and since all my payments don't happen in real life, I shouldn't pay tax anywhere?

They will find a way to tax it if they see there is enough value in it. I hope it gets outlawed to tax on virtual goods. Then I can ask my company to pay me in WoW gold or Linden dollars after which I can purchase stuff in certain stores or from e-bay, online with my online-virtual-money.

Another question: if your virtual stuff remains on out-of-state or out-of-country servers and all exchanges happen through virtual accounts, how will they tax that?

Re:You are all missing something: (1)

meringuoid (568297) | more than 7 years ago | (#16456069)

They can only tax actual income made from the sale of said items ingame. They cannot put a value on virtual goods until the actual event of purchase/sale occurs using real money.

Define 'real money'.

Suppose an American conducts a business of some kind in, shall we say, Luxembourg. He sends instructions to his agent there, and receives feedback. He runs the business well, and an account in his name fills up with euros. The European Central Bank backs this currency and it is exchangeable for goods and services within participating member states of the European Union.

Now suppose an American plays a game in World of Warcraft. He sends instructions to his character there, and receives feedback. He plays the game well, and an account in his name fills up with gold coins. Blizzard backs this currency and it is exchangeable for goods and services within the gameworld.

Both currencies are also exchangeable for dollars - euros at any bank, gold coins on eBay - at the prevailing market rate.

So: would an American conducting his business in France be taxed only when, or if, he converts his euros to dollars?

Ummm.... (2, Interesting)

porkThreeWays (895269) | more than 7 years ago | (#16455615)

This may have been an issue at one time when I actually knew people making a living on EQ. However, I really doubt it's a huge deal today. Because of the international aspect of most of these games, lots of people with lots of time on their hands have time to make most items and currencies almost worthless in real money. I used to know 5 people who supported themselves on EQ transactions. Today, I don't know any who support themselves via mmorpg.

Um, Duh? (2, Interesting)

Omega (1602) | more than 7 years ago | (#16455665)

Almost any time money changes hands it is subject to taxation. I don't get why selling a "virtual" item shouldn't be subject to taxation as well? I mean, if I sell software online only -- that's virtual too, right? So doesn't sales (or at least income) tax apply?


The real question is, "Is selling virtual property" subject to capital gains taxes (like selling a second home or shares of stock)? There's an argument to be made there -- and I'd be curious to see what Congress says.

My God! (0)

Anonymous Coward | more than 7 years ago | (#16455667)

How do you tax that which has no life?

Yeah, but (3, Interesting)

Lord Kano (13027) | more than 7 years ago | (#16455677)

Is it considered earned income or a capital gain?

From a tax perspective, there's a huge difference.

LK

Re:Yeah, but (1)

Pop69 (700500) | more than 7 years ago | (#16455799)

Depends how long you play the game for.

If you play an account for 6 months, sell, rinse and repeat than I'd have said income tax as it's a trade.

Play for 3-4 years and sell up on quitting then it's a capital gain.

Of course, if they tax it as income tax then you should be able to deduct your expenses, cost of game purchase, monthly fees for game, proportion of ISP charges, etc.

deduct your expenses!! (2, Insightful)

amigabill (146897) | more than 7 years ago | (#16455697)

Just remember to deduct your expenses toward creating your virtual wealth. Buying the retail box or download, the monthly service fees, upgrade fees when new content is released, etc. should all be legit deductions to such a tax.So should some percentage of your electric bill to power the computer. Maybe part of that nice new desk, chair, and all that too. If they want a tax, they better recognize the business expenses we're ging to to create that income, virtual or not, and if they leave the deductions part out of this weird tax law they better be ready for a virtual revolution.

I wonder when Monopoly will stat coming with a per-game tax too...

I Honestly Don't Care (1)

rhartness (993048) | more than 7 years ago | (#16455711)

It will be tough for congress to a way to systematically tax those who are making money from MMO games. Part of the reason is because each MMO is it's own micro-economy and monetary transactions are handled differently both in and out of the game. If congress does try to come up with some (lame, I'm sure) method for taxing the profits of American gamers, an international banking solution for such transactions will most likely provide itself before congress has even signed the bill into law.

Given that most gold farmers appear to be Chinese. (2, Funny)

Channard (693317) | more than 7 years ago | (#16455731)

.. I don't think this will have as much impact as they think.

Taxation, good luck (4, Insightful)

Shihar (153932) | more than 7 years ago | (#16455761)

The only case where I can see taxation having any success is when a company facilitates it in a direct way. So, if I can cash money out of the game directly, you might very well be forced to pay a tax in the same way you are forced to pay a tax when you get a paycheck from work.

That said, that sort of transaction where a legitimate business is facilitating a cash transfer is pretty rare. The real money trading hands in MMORPG economies is almost exclusively person to person transaction, non-legal companies, or legal companies outside of the US. In all of those cases you are about as likely to get a drug dealer to voluntary tax report his taxes as you are to get some guy working over e-bay to report his income.

The only reason I can think of to voluntarily report MMORPG income is if you are making so much that it makes up a substantial part of your income. In that case, you might report some fraction of it just to avoid looking like a drug dealer.

I expect the vast majority of people to simply ignore any efforts to improve taxation about as easily as they ignore laws against a few guys playing poker on Friday night and smoking small quantities of marijuana. Yeah, those activities are illegal if you are caught, but unless you are running an underground casino or smuggling pounds of drugs, no one really cares and the penalties for being caught are a slap on the wrist.

watch out for back taxes (1)

192939495969798999 (58312) | more than 7 years ago | (#16455789)

if you made a bunch, expect the IRS to be coming after you... income is income, and unreported income still can mean trouble!

On the subject of gold farmers (1)

Hubbell (850646) | more than 7 years ago | (#16455823)

Some of you obviously have only played WOW and know nothing of what a major source of income account selling was in the old days. AC accounts regularly went for 500-5,000 (5,000 was the most any 1 account ever went for in AC)
I know one of the Blood monarchy's cores in AC made $30,000 in a year from selling AC accounts/items, as well as about $40,000 in UO items/accounts when he quit to move to AC.

Making a living (1)

EW87 (951411) | more than 7 years ago | (#16455833)

LOL a friend of mine makes an extra 500 a week from his Hovercraft business in There.com. I was always hopeless with it. I always just barely cut even. I doubt Congress will be able to tax the game transfer of currency exchange. It's like them taxing me for buying a couple Euro when it was 1-to-1 and then exchanging it for dollars when the Euro is worth more than the dollar.

WAR ON MIDDLE AZEROTH (1)

chowdy (992689) | more than 7 years ago | (#16455835)

THE MIDDLE CLASS OF AZEROTH HAS HAD ENOUGH!
First exhorbitant repair rates, rising mount costs, and now this?

The real issue is when is the income earned (1)

Registered Coward v2 (447531) | more than 7 years ago | (#16455845)

Let's say you accumulate items worth say $1000 if you sold them - does the act of accumulating them cause the income or does it exist only if sold? Can you deduct the cost of playing? What happens if you trade an item in game? Did you just create a sale?

While this may seem trivial, those are the type of issues I see the IRS struggling with when deciding what constitute income and when is it earned.

Personally, if no cash or other goods of value are traded only online and not for cash or other goods / services in the real world then in my mind no income was earned. The IRS may take a different view.; especially if you barter a game item for something tangible in the real world.

Really? (0)

Anonymous Coward | more than 7 years ago | (#16455869)

Why yes, I also read fark

Re:Really? (0)

Anonymous Coward | more than 7 years ago | (#16455981)

who are the other 2 who read fark ?

Sounds like a plan! (1, Insightful)

Anonymous Coward | more than 7 years ago | (#16455895)

So i want to anonymously transfer some funds to Al Quaida or Al Capone or Al Bundy, i just have to:

1. Register in told MMORPG
2. Buy weapons, land whatever on ebay(or other means, i am not too experienced yet)
3. Meet AQ/AC/AB in the game who takes away my stuff
4. He sells the stuff where it can be sold.

- No record who i handed the items (is there full log of these games stored anywhere?)
- I have lost in a game, i did not support terrorism/mafia/AB
- The receiving end made a fortune on gaming, not easy to prove he received donations

Great!

vajk

Mod parent insightful (2, Funny)

davidwr (791652) | more than 7 years ago | (#16456037)

He's wearing a Helmet of Insight +5.

DoD not IRS (1)

GodfatherofSoul (174979) | more than 7 years ago | (#16455929)

I'd rather we declare war against these buttheads rather than sending them past due tax bills. Gold farmers destroy the economies of games like Warcraft, at least they make like damned hard on honest in-game farmers. They depress the prices on the resources you harvest and increase the costs of the auction house goodies you're looking to buy. I wouldn't mind seeing some of these guys waterboarded.

Tax? (1)

TheRooster_13 (808719) | more than 7 years ago | (#16455949)

How many of us play board games? Or card games? Why not tax all those transactions. What about borrowing items from friends?

The game company is already taxed for the profits they make. And there is a lot of money moving hands there.

I can see taxing profits from a game (i.e. if you make more than you spend in monthly fees or whatever) and taxing profits the company makes, but anything else is absolutely silly and greedy.

Re:Tax? (1)

KayElle (914547) | more than 7 years ago | (#16456071)

"I can see taxing profits from a game (i.e. if you make more than you spend in monthly fees or whatever)"

I believe that's what we're talking about.

The way to handle this... (1)

bunyip (17018) | more than 7 years ago | (#16455953)

...is to vote. Or have gaming lobbyists.

There are other types of income with real-world value that the IRS doesn't go after. What about frequent flyer miles? My employer buys my tickets to go to meetings, as abusiness expense and I get the mile. I have enough to fly around the world first-class, but aren't required to report them on my taxes.

d2 (1)

kevin.fowler (915964) | more than 7 years ago | (#16455983)

This seriously would have sucked when I was selling stormshields, etc. on ebay three years ago. The only way the gvmt is going to even attempt to regulate this is if they weed their way into Ebay/paypal and monitor stuff from the inside.

sH4it (-1, Troll)

Anonymous Coward | more than 7 years ago | (#16455989)

that *BSD 0wned. been many, not the *BSD is dying It is is dying. Fact: I read the latest There are only coomunity. The duty to be a big

I don't see a problem (1)

AxemRed (755470) | more than 7 years ago | (#16455991)

It doesn't sound like they're taxing what you have in the game. They're just taxing you if you sell your game assets and make real-world money. This isn't something new. If I sell something for profit, I get taxed on the income, no matter how worthless the item is that I sold.

Tax things they don't understand (1)

WickedLogic (314155) | more than 7 years ago | (#16456053)

Why do government officials always want to tax things they do not understand? When it turns into real currency, people have to report it as income, or if your smart as a sale and thus you can write of legit expenses of generating that sale. Plain and simple.

Why not just put a counter on the tube marked for virtual currency currently untaxed, cause that's how the internet works right?...

EULA (1)

Joe The Dragon (967727) | more than 7 years ago | (#16456075)

What does this meen for EULA's? Does it meen that US law trumps Eulas? It so this may be a good thing.

Tax forms? (0)

Anonymous Coward | more than 7 years ago | (#16456091)

Great, what would the tax forms look like for this?

Form WOW-E4-T
-------
[Box 1] Virtual World income for tax year: $530,040.34
[Box 2] Virtual World business expenses for tax year: $61,304.13
[Box 2a] Advertising expenses: $1,203.42
[Box 2b] Telephone expenses: $103.13
[Box 2c] Rent/lease expenses: $14,032.13
[Box 2d] Motor vehical expenses: $800.33
  - Note: Please submit virtual world receipts with tax return.

[Box 3] Virtual World dependants: 59
[Box 3b] Dependants under the level of 18: 34

[Box 4] Expenses NOT incurred due to sitting at home all day: $25,034.12
[Box 4b] Portion thereof for not taking your girlfriend out: $18,123.23
[Box 4c] Portion thereof for not showering: $921.12 ...
<head explodes>

Try taxing whuffie (1)

gaika (975356) | more than 7 years ago | (#16456133)

It will take them a while to figure out how to tax reputation based currencies like Whuffie [bitchun.org] .

Let them raise a virtual army (1)

vulpes_fulva (737985) | more than 7 years ago | (#16456139)

There's a question of jurisdiction. The host government has unquestioned jurisdiction over physical machines hosting the games, but the virtual worlds are different. They don't necessarily exist within the coordinates of the host government's borders.

To subvert virtual lands into colonies, governments will have to raise a virtual armies to assert rule.
The inhabitants will most likely resist.

Can anyone see reservations, re-education camps, trails of tears ...

10-K (1)

edusmoreira (978831) | more than 7 years ago | (#16456163)

edusmoreira Corp. ("edu" or "the one who sucks at WoW") was incorporated in Brazil to develop entertainment activities, namely to play WoW. We discontinued our operations due to incredible lack of skill in the course of the aforementioned activities. We are also seeking to redeploy our existing resources to identify and acquire one or more players with existing or prospective taxable earnings that can be offset by use of our net operating loss carry-forwards (NOLs).

Et cetera. Let me know if you are interested.

Re:10-K (0)

Anonymous Coward | more than 7 years ago | (#16456465)

Funniest post I've read all week on slashdot!

Does this mean... (2, Insightful)

Samurai Cat! (15315) | more than 7 years ago | (#16456227)

...those folks can write off their WoW account fees, and depreciation on their computers, etc. as "expenses"?

OMG NERF IRS FTW!!!!1!1 (1)

Maradine (194191) | more than 7 years ago | (#16456353)

I, for one, demand that the devs give the taxpayers some love and nerf the IRS. Everybody bump until we see some blue text!

taxes ? so be it ! (1)

l3v1 (787564) | more than 7 years ago | (#16456453)

So pay them those taxes, but if they demand, make your demands too: deduct the costs of playing: cost of PC, cost of electricity, cost of buying the game, cost of monthly subscription fees, etc. :)

BTW, how will they know you had any income ? Who will tell them that you are playing, what is your character's id and how much money you made with it ? Will they ask every player's all data from the game maker ? Can they ask and will them give ?
 
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