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Taxes, Second Life and Warcraft

CmdrTaco posted more than 7 years ago | from the get-on-the-ype-train dept.

Role Playing (Games) 441

An anonymous reader wrote in to say that there is "...a new law review article that explores the tax treatment of players in Second Life and World of Warcraft. The bottom line is that commercial activity that occurs in virtual worlds should be taxed the same as in the real world. But purely personal activity within virtual worlds should not be taxed."

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Only one answer (1, Insightful)

Stumbles (602007) | more than 7 years ago | (#18663161)

The bottom line is that commercial activity that occurs in virtual worlds should be taxed the same as in the real world.

BULLSHIT

Re:Only one answer (4, Insightful)

UbuntuDupe (970646) | more than 7 years ago | (#18663195)

Wah! I'm a geek who loves closing tax loopholes for the rich until I realize that means taxing my nerdy activities too!

Re:Only one answer (5, Insightful)

drinkypoo (153816) | more than 7 years ago | (#18663335)

Wah! I'm a geek who loves closing tax loopholes for the rich until I realize that means taxing my nerdy activities too!

Taxes on activities carried out in the Real World (tm) are taxes because those activities depend on certain services which are funded by tax monies.

If the activities take place only in a virtual world, and the entire transaction is carried out within the private sector and without government involvement, then precisely why should they be taxed?

The truth of course is that there is simply less government involvement. Thus such transactions should be carried out at a reduced tax rate.

Re:Only one answer (5, Interesting)

UbuntuDupe (970646) | more than 7 years ago | (#18663501)

Taxes on activities carried out in the Real World (tm) are taxes because those activities depend on certain services which are funded by tax monies. ...The truth of course is that there is simply less government involvement [in MMORPGs].

Oh, I basically agree, but this opens up a new can of worms: it commits you to:

a) separating businesses based on how much government they use, and taxing them differently (at least to a coarse approximation)

b) taxing the economy *only* at the rate required for the government provice the services needed for it to exist.

a) isn't so bitter a pill to swallow, but b) means much, much lower taxes, since very little tax revenue is spend on ensuring the necessities for the modern economy to exist, at least when honestly appraised. For virtually every government program, you can find a country that does without it, or has much less of it. (I can't sell items on ebay unless the government has a presence in Iraq? Come on!)

Re:Only one answer (4, Funny)

Anonymous Coward | more than 7 years ago | (#18663515)

Less government involvement???

You've obviously failed to account for the effort governments expend in monitoring all online activity so they can enforce those taxes.

Sheesh!

Re:Only one answer (4, Insightful)

Surt (22457) | more than 7 years ago | (#18663703)

Yes, the virtual world is totally non-dependent on telecom fiber lays supported by our governments, don't use any government subsidized power, and never rely on the roads to move server equipment. They'd be totally unaffected if our national government laid down its arms, gave up having a military budget, and let other countries invade at will. And the people who participate in these things are totally independent of the social benefits network, as none of them have any children, or parents or ...

Anyway, you get the idea.

Re:Only one answer (5, Informative)

tomhudson (43916) | more than 7 years ago | (#18663993)

Whoa - all that "national" stuff is paid for, either directly by taxpayers, or indirectly through bond-holders, or as "consumers." There is no such thing as "government-paid" anything - it all ends up coming out of your pockets, or your kids pockets.

In other words, taxing transactions that don't involve the exchange of legal tender - you know - REAL money - is pure BS, because nothing or REAL value has changed hands. Or will the IRS start accepting payment in Linden Dollars and WoW points?

They'd be totally unaffected if our national government laid down its arms, gave up having a military budget, and let other countries invade at will.

Go look at New Jersey (google for "new jersey the armpit of the world"). Then tell me that letting another country invade it wouldn't be a "Good Thing". Heck, they're probably praying for a hurricane or other natural disaster. http://gilded-messiah.livejournal.com/2004/12/06/0 [livejournal.com]

I'm from New Jersey. That's right, New Jersey. The Armpit of America. The sewage capital of the world. New York's retarded little brother. You can keep your pity, however, because I'm here to defend it, mostly. Like many escaped New Jersey inmates, I have a unique variant of Stockholm syndrome when it comes to my home state. I've fallen in love with my captor.

Don't get me wrong. New Jersey is a cesspool, just as you might have suspected. There really are girls with big hair and awful accents living in malls, women so awful that they turned the governor gay. These women really do have 400 pound boyfriends with hairy backs and low IQs. Turn signals are considered worthless luxury features, and, God help me, the whole state really does smell. However, it's New Jersey's consummate crappiness that ultimately makes it so great.

Radio personality Jean Shepard once said that New Jersey was "the most American of all states. It has everything from wilderness to the Mafia. All the great things and all the worst. For example, Route 22." Route 22, for those of you who don't know, is- I kid you not- a 24 hour strip mall that runs the length of the state. What is more quintessentially New Jersey- nay, more quintessentially American- than that? It's also the only place to go at 3 AM when you decide it's a good time to get some coffee and disco fries, or perhaps visit White Castle, the only burger joint with the gall to call their visibly greasy laxative rat-patties "Sliders."

While not unique to the state, White Castle's hamburgers share a few characteristics with New Jersey: they're both guilty pleasures, they only appeal to a small portion of the population, and they're both ironically nicknamed. New Jersey is, after all, the "Garden State," which in New Jersey-speak means "densely populated paved hellscape." In fact, New Jersey is the most densely populated state of the union, which might lead you to believe that the state is crowded and polluted. It is. But the large population isn't all bad. Because of its population density, New Jersey serves as a cultural microcosm of America as a whole. It is the proverbial "melting pot," where Godless, homosexual, French hippie crackheads live just a stone's throw away from inbred, racist, unwashed redneck crackheads. I know, because they're throwing stones at each other all the time.

I know what you're thinking. You're thinking ,"This still sounds completely awful." Like I said earlier, it is awful, and everyone there knows it. For a while, New Jersey considered changing its state song to Bruce Springsteen's "Born to Run." Not only would this have been the only state song to contain the word "suicide," but also the only one about trying desperately to get the hell out of the state.

Re:Only one answer (4, Interesting)

Dachannien (617929) | more than 7 years ago | (#18663775)

The term "virtual world" should not be taken literally. It's not like these people are playing from their apartments on Mars or something. They are in the real world, and where their virtual actions touch real world money, the government has a legitimate interest in recouping its expenses, e.g., law enforcement concerning online fraud. This is what's meant by "commercial"

Where transactions are purely virtual - i.e., the transaction does not touch real money - the transaction has zero value in the real world, and the taxes should also be zero. But if you're talking about RMT, whether it's sanctioned by the game developer (Second Life) or not (most MMOGs), then the transaction is no longer purely virtual.

This isn't exactly what the article author indicates - she believes that if you are dealing in Lindens, then you're essentially engaging in barter with intangible property - but I would argue that Lindens are worthless until there is an interface with a non-virtual good, service, or money, and that's the point at which tax could be assessed.

Whether or not from a public policy perspective it's a good idea or not to tax online transactions is another question entirely (e.g., tax moratoria, etc.).

Re:Only one answer (1)

Kijori (897770) | more than 7 years ago | (#18663967)

Taxes on activities carried out in the Real World (tm) are taxes because those activities depend on certain services which are funded by tax monies.

This mindset is, in my opinion, both incorrect and disturbing. Firstly, activities carried out in the Real World are dependent on services funded by the government, but it does not follow that these taxes serve only to reimburse the Government for the money spent to provide these services. This is where the "disturbing" aspect comes in, in my opinion. There are a lot of services that the Government should, in my opinion, provide but which aren't directly funded by taxes on their use. Healthcare would be one such option; a universal health care system, as seen in many European states, is funded indirectly. Education, for another. And other services: unemployment support, pensions, even things like police forces. These require money, which needs to come from taxes, and income tax is not enough alone.

Re:Only one answer (5, Funny)

MadJo (674225) | more than 7 years ago | (#18663417)

I'd only want to pay this tax, if I can pay these taxes with virtual money.

Re:Only one answer (4, Interesting)

jandrese (485) | more than 7 years ago | (#18663623)

In fact for games like WoW that is the only way I can see that you would be able to tax it, since there is no generally agreed upon standard for converting WoW Gold into US dollars. Third party out of country gold farmers do not make for a nationally recognizable conversion rate.

Secondlife however has a money market and maintains an up-to-date exchange rate of Lindon Dollars to US Dollars. It would be entirely possible to tax earnings in Secondlife in real dollars, although 99% of the time the tax would come out to pennies per month (effectively not worth the government's time), some of the larger Land Barons however could easily make enough to have to pay taxes on it.

Re:Only one answer (1)

flitty (981864) | more than 7 years ago | (#18663255)

I agree. My money i spend to play is already taxed. The only thing that is Real world taxable should be if i sell my characters, and even then, it could be considered self-employment, and is tax exempt for any amount up to around $4,000 (iirc).

Re:Only one answer (0)

Anonymous Coward | more than 7 years ago | (#18663341)

FTFA: I argue that players of games like WoW should be taxed if and when they cash out--that is, on real market trades

Way to RTFA.

Re:Only one answer (3, Interesting)

Atlantis-Rising (857278) | more than 7 years ago | (#18663395)

You mean you don't realize that money is taxed at every step where it changes hands? This is how it has always worked- why should the internet be any different?

Re:Only one answer (1)

flitty (981864) | more than 7 years ago | (#18663827)

..money is taxed at every step where it changes hands?

Yes, but we are not exchanging money in MMO's. If I create electrical blueprints for an architecture company, and then send those off, that doesn't get taxed, right? The money I make to do such a service does, but not every time I provide the blueprints. This is just silly.

Re:Only one answer (1)

Aladrin (926209) | more than 7 years ago | (#18663899)

Close, but not quite. Every step at -retail- that is changes hands. I don't get taxed when I sell my neighbor something, and resellers don't get taxed when they buy good to resell.

Putting a tax on virtual goods/money would mean that every NPC shop would have to charge tax and give it to the government, unless the player was registered as a reseller and was buying the goods to resell to someone else.

But that isn't even the beginning of the problem. The problem is that -nothing- changes hands. Players do -not- own the items that are on their character, or the 'money' either. In World of Warcraft, all of that, including the character, is owned by Blizzard, always has been, and always will be.

There's no place to tax it, unless you tax Blizzard.

Re:Only one answer (1)

Mr. Underbridge (666784) | more than 7 years ago | (#18663813)

The bottom line is that commercial activity that occurs in virtual worlds should be taxed the same as in the real world. BULLSHIT

As long as the taxes are payable in virtual currency, I'm OK with it.

Why? (0)

Anonymous Coward | more than 7 years ago | (#18663173)

At some point, the virtual currencies or properties need to be converted to real currency. Tax the profits at that point, I don't see a reason to tax all the intermediate transactions.

Re:Why? (1)

superwiz (655733) | more than 7 years ago | (#18663413)

I don't think that many people would argue with taxation at the conversion point. The problem is when killing boars gets you notices by IRS. That's BULLSHIT.

That pretty much nails it on the head. (5, Insightful)

Churla (936633) | more than 7 years ago | (#18663185)

It's the difference between an amature/hobbiest and a professional. Once you start making real world money off things you are at that point a professional and income from your profession should be taxed.

Don't tax me just because I have 10k in gold in WoW... But if I sell that for the $1,600 or so I could get wholesale for it, then it's income and I should give unto ceaser and all that..

Re:That pretty much nails it on the head. (1)

csplinter (734017) | more than 7 years ago | (#18663295)

It's the difference between an amature/hobbiest and a professional. Once you start making real world money off things you are at that point a professional and income from your profession should be taxed.

Why should everything new be taxed as soon as it becomes evident that there is real money in doing so. If the government needs the money, why didn't it need the money yesterday? If it needed it yesterday why weren't taxes raised yesterday.

Re:That pretty much nails it on the head. (4, Informative)

Churla (936633) | more than 7 years ago | (#18663377)

The fact is this isn't something "new." This is still simply income.

You could be raising tomatos out in your back yard, then selling them to neighbors just as easily as you could be farming gold in WoW and selling it to desperate e-peen jockeys who need consumables for raiding... Same thing.

If you raised those tomatos and just gave them to your neighbors that's not income, ergo not taxed. It's when you charge for them that it becomes income.

So this isn't a matter of establishing a new tax as it is a matter of making sure we have definitions of what is and isn't income. A different medium makes no difference.

Re:That pretty much nails it on the head. (1)

csplinter (734017) | more than 7 years ago | (#18663547)

I disagree, there is plenty lack of precedent for online sales tax, maybe you live in a state (or outside the states) that has a sales tax for online purchases but, I don't. If your suggesting I be taxed in some other manner than a sales tax, why then don't I have to pay a tax when I transfer money with paypal. That's not consistent. BTW, I live in Texas, we don't have an income tax.

Re:That pretty much nails it on the head. (1)

gEvil (beta) (945888) | more than 7 years ago | (#18663675)

...maybe you live in a state (or outside the states) that has a sales tax for online purchases but, I don't.

Are you sure?!? This form [state.tx.us] sure does look like they expect you to pay taxes for purchases made online.

From the first few lines of that form:
"Examples of items subject to use tax include purchases made over the Internet or the telephone from an out-of-state seller who does" (emphasis mine)

Re:That pretty much nails it on the head. (1)

gEvil (beta) (945888) | more than 7 years ago | (#18663731)

Bah! The last part of that got cut off...

"Examples of items subject to use tax include purchases made over the Internet or the telephone from an out-of-state seller who does not collect tax, and items purchased while visiting another state or country."

You can find more information on Texas use tax on this page. [state.tx.us] You might want to read over the "at a glance" section...

Re:That pretty much nails it on the head. (1)

Churla (936633) | more than 7 years ago | (#18663747)

I also live in Texas. What you are seeing in the "no tax on internet purchases" was a specific caveat made in order to foster and encourage the growth of e-business. In theory if you buy something on line from a retailer who has a storefront in Texas you're supposed to be paying sales tax on it as well. That is just not enforced because it's very impractical to do so.

An example is Borders, who I believe is spinning it's e-commerce stuff off from Amazon. They will have to charge sales tax on all purchases because they have storefronts in every state. But this is a moot point because you're thinking of sales tax, and the topic here is income tax. If you make income and profit off on-line sales you still owe income tax, that is not exempted from taxation merely because it's online.

Re:That pretty much nails it on the head. (1)

csplinter (734017) | more than 7 years ago | (#18663955)

I'm aware but, neither WOW or Second Life are based out of Texas, this, it seems to me, is an argument in my favor.

In theory if you buy something on line from a retailer who has a storefront in Texas you're supposed to be paying sales tax on it as well.
To clarify your point, it is the responsibility of the seller to collect sales tax of course, it's not a buys tax after all :-)

Re:That pretty much nails it on the head. (1)

MeanderingMind (884641) | more than 7 years ago | (#18663751)

BTW, I live in Texas, we don't have an income tax.


I just moved here for my first job. I did a merry jig when I realized the reason I hadn't received an income tax form from the state was because there was no income tax.

Soooooo much nicer only having to worry about federal.

Re:That pretty much nails it on the head. (5, Insightful)

UbuntuDupe (970646) | more than 7 years ago | (#18663401)

Don't tax me just because I have 10k in gold in WoW... But if I sell that for the $1,600 or so I could get wholesale for it, then it's income and I should give unto ceaser and all that..

The problem is that under that principle, investors could evade taxes. Basically, investors have long salivated at the thought of deferring taxation of all intermediate gains (reinvested dividends) until spent on consumption. (Yes, you can do this with retirement accounts, but I'm talking about once those are maxed out.)

If you exempted those good-as-money gold transactions from taxation, investors could do something similar. Basically, they could set up "pseudo-dollars" that are instantly redeemable for real dollars (and vice versa). Then they would be exempt from dividend taxation until they want to spend the dollars on consumption.

Now, I actually support the idea of allowing deferral of taxation on dividends that are re-invested, but I just wanted to point out the problem (from the IRS's standpoint) of exempting WoW gold.

Re:That pretty much nails it on the head. (2, Insightful)

khallow (566160) | more than 7 years ago | (#18663533)

Wake me up when they're hiding millions of dollars of investments and transactions by using WoW gold or the equivalent. I imagine in a few years, there will be some game stable enough that one could launder some amount of money through it. But you still have the problem of extracting the "money" from the system.

Re:That pretty much nails it on the head. (5, Interesting)

nickname225 (840560) | more than 7 years ago | (#18663945)

I'm an attorney and I do some work in the tax area. Your thinking is not the way that tax works. The rule is - you are taxed on all income from whatever source. Income is the receipt of anything of value. As long as the value is reasonably determinable, you are taxed on that value. If the value is not reasonably determinable, you are taxed on it once the value becomes reasonably determinable. Of course, if you play WOW and earn income, it is as a small business, not as an employee. So all your costs, such as fees to play, and a portion of the depreciation on your computer, and a portion of your internet service fees, etc are deductible against that income. Then you get into a sticky question - if you buy a special weapon, to help you earn more gold - it is a capital expenditure and must be amortized - so what is the amortization period of a virtual weapon? Best thing to do - is not hold it past the end of the calendar year and dispose of it at a loss and take the full loss as a deduction against your WOW earnings. In practice, I think, few people when looked at in this light are profitable playing WOW. But beyond a doubt those who are are subject to the tax laws, although it will not prove profitable for the IRS to pursue these cases, since the amount is so small.

Re:That pretty much nails it on the head. (1)

nickname225 (840560) | more than 7 years ago | (#18663981)

BTW, if anyone wants to be a test case, here is a good idea. Follow all the rules for a home office (they are fairly strict) and attempt to deduct your home office on your taxes with your business as playing WOW. The IRS will most likely disallow the deduction since you are not pursuing a real business with a profit motive and will determine that your business is in fact a hobby.

This could mean.... (3, Funny)

willie_nelsons_pigta (1006979) | more than 7 years ago | (#18663205)

This could mean the end of the World......of Warcraft.

Sorry, but I couldn't help it.

What is this bitch smoking? (0, Flamebait)

zyl0x (987342) | more than 7 years ago | (#18663217)

FTFA:

Games like WoW raise income tax issues, in part because items in them, though part of a "game," have real market value. In [my] paper, ... I discuss two of the issues: the taxation of loot "drops" and the taxation of exchanges within the game, such as the exchange of a virtual sword for gold.
I don't think I really have to say anything after that aside from "Wow, what an idiot!" Obviously she's unaware that something cannot have "real market value" when it's illegal to sell. It's like taxing people for existing because their organs and blood can be sold on the black market. This is what happens when people develop "professional opinions" about shit they know absolutely nothing about.

Re:What is this bitch smoking? (0)

Anonymous Coward | more than 7 years ago | (#18663319)

SHHHH, don't give them ideas, dammit.

Re:What is this bitch smoking? (4, Informative)

MBGMorden (803437) | more than 7 years ago | (#18663339)

Also FTFA (only a few sentences after your quote):

For these reasons and others, I argue that players of games like WoW should be taxed if and when they cash out--that is, on real market trades.
So IF you choose to sell it, then they should be taxed.

Also, note that in Warcraft, nothing about cashing out is ILLEGAL. It's just against the Terms of Service. When you sell gold, or a character, or anything else, you're not selling anything physical: you're selling access to that (it never leaves Blizzard's servers).

While is is completely within Blizzard's rights to cancel any accounts associated with such activity (afterall, they technically own the accounts), there is nothing illegal about it.

Re:What is this bitch smoking? (2, Insightful)

esme (17526) | more than 7 years ago | (#18663381)

Obviously she's unaware that something cannot have "real market value" when it's illegal to sell.

Right. Just like illegal drugs have no market value, and nobody's ever been busted for income tax evasion because they didn't report their drug dealing income...

-Esme

Re:What is this bitch smoking? (1)

Churla (936633) | more than 7 years ago | (#18663445)

There are actual regulations and laws regarding how to list illegally gained income on your taxes. The funny thing is you can list illegal income and because you list it is not considered a viable reason for the police to investigate you unless they have other evidence.

Re:What is this bitch smoking? (1)

CastrTroy (595695) | more than 7 years ago | (#18663837)

But would listing this on your tax return give them a reason to go collect more evidence? Couldn't they start collecting more evidence so that they could just use that, and pretend that they never knew that you reported it on your taxes? Sure they couldn't search your house, but they could conveniently be in the right place at the right time (by following you) in order to catch you doing these illegal activities.

Re:What is this bitch smoking? (1)

Churla (936633) | more than 7 years ago | (#18663867)

Depends on how honest the cops are.

And if you've got dishonest cops you have far bigger things to worry about. I mean what kind of governmental system would be able to operate if you had an executive branch playing fast and loose with the rules of law...

Um.... nevermind.

Re:What is this bitch smoking? (1)

drinkypoo (153816) | more than 7 years ago | (#18663425)

I don't think I really have to say anything after that aside from "Wow, what an idiot!" Obviously she's unaware that something cannot have "real market value" when it's illegal to sell.

What? Of course it can. It also comes with a built-in risk. But the fact is that many things have a commonly accepted market value in spite of being illegal to sell in most places. Marijuana is pretty much the prime example; illegal to sell in most situations in all 50 states, illegal to sell in all situations in something like 45 of them, but basically every area has an established price for common quantities thereof.

Re:What is this bitch smoking? (1)

328iS (684085) | more than 7 years ago | (#18663431)

I'm ignoring the fact that there is nothing "illegal" about selling WoW property, it's merely against the Terms of Service... WRONG! Illegal activity has always (since the inception of the modern tax code at least) been subject to a tax burden. As a matter of fact, this is one of the primary vehicles used to prosecute criminal activity (mostly, selling drugs). Of course, in some states you can buy a marijuana tax stamp that will provide some protection against these charges but IANAL so YMMV.

Re:What is this bitch smoking? (1)

MrShaggy (683273) | more than 7 years ago | (#18663741)

Look at Al Capone.

Thats the only reason they got him.

Now if they happen to find anything else while they are busting these people,they get the warrent and go from there.

The government wants their cut of everything. I think that it might be, that pot is still illegal. They might be getting more tax money off of that, then if it was legal.

Re:What is this bitch smoking? (1)

Volante3192 (953645) | more than 7 years ago | (#18663443)

Obviously she's unaware that something cannot have "real market value" when it's illegal to sell.

Tell that to Al Capone and anyone else arrested for illegal activities for not paying their taxes. Or to news organizations when a raid on a marijuana farm turns up "a $47 million street value haul." Obviously it has $0 value since it's illegal...

Frankly, once you get into real world monetary exchange, expect to pay taxes. Heck, this should be a duh for Second Life since this is built in to the system. Some people (allegedly) make a decent chunk of their living expenses from Second Life.

I think it's just inevitable that this is going to happen; I would just hope that, first, there's a grace amount, like $500, to give hobbyists some leeway but high enough to catch people that make a decent profit from an online world.

Second, that if the government gets their mitts into this that they provide the same protections inside the game world that they do outside. Enforcing contracts, and whatever else they're supposed to do to protect their citizens, especially legitimate transactions (i.e., Second Life). They can't just take the money and then have a hands-off policy if problems arise.

What are YOU smoking? (4, Informative)

raehl (609729) | more than 7 years ago | (#18663473)

Obviously she's unaware that something cannot have "real market value" when it's illegal to sell.

Hey, look a slashdot comment about something that is 'obvious' that is entirely wrong!

You're wrong. Your first problem is that sale of WoW items is not illegal - it's merely against the terms of service contract you have with the service provider, which is NOT the same thing. Income earned in violation of a contract is still income, and you still have to report and pay taxes on it. If this were not the case, I could just have a contract with anyone who gives me money that says I must live in Trinidad and Tobago to get paid, and then turn around to the IRS and say that since I earned that money in violation of the contract it's not taxable. Clearly this isn't the case.

But let's say, for the sake of argument, that sale of WoW was actually illegal. Guess what? You're STILL wrong!

Income from any commercial activity is taxable, whether is is legal or not. And that's how the government often gets people involved in illegal activity - they don't prove necessarily that they were doing something illegal, they just prove that they had income that they didn't declare on their taxes and get them for tax evasion.

For example, if you make $1 million selling cocaine, even though the activity is illegal, you're still liable for the taxes on the income, and can still be criminally charged for tax evasion in addition to narcotics distribution.

A more mundane example is illegal immigrants - even if you're working here illegally, you still have to pay taxes, and that's one of the big reasons the IRS started issuing individual tax ID numbers - so people using fake social security numbers could still file their taxes. And believe it or not, a lot of illegal immigrants do pay taxes.

As a more general comment on the topic at hand, it seems logical to me that you'd only be liable for taxes on WoW and other virtual items if you actually sold them for real money. And if you did, you'd at least be able to deduct your subscription fees. But if you only keep your virtual items in the virtual world, I don't see how you have tax liability there any more than you have tax liability if you sew your own clothing. Start selling that clothing to others though....

Regardless, maybe you should go back to arm-chair quarterbacking and leave the arm-chair lawyering to the professionals.

Re:What are YOU smoking? (1)

Wingnut64 (446382) | more than 7 years ago | (#18663963)

Income earned in violation of a contract is still income, and you still have to report and pay taxes on it.
In WoW you do not own any virtual items you have, they are the property of Blizzard; they simply let you use them so long as you have an active account. At least in that case the players are immune to any half-baked idea like taxing iron mined from infinitely respawning deposits.

Re:What is this bitch smoking? (1)

Deadstick (535032) | more than 7 years ago | (#18663593)

Income received illegally is taxable income and you are required to report it on Line 21 of Form 1040. If you don't, you go down for tax evasion in addition to whatever you did to get the money.

rj

waste of time (-1, Flamebait)

Anonymous Coward | more than 7 years ago | (#18663257)

The author has too much time to think about matters like this. Instead she should worry about not getting enough lay.

Re:waste of time (1)

Austerity Empowers (669817) | more than 7 years ago | (#18663453)

I think she thought of that, but because she can make a sizeable amount of money by giving birth to children and selling them off, she's worried that her reproductive system is in danger of being taxed. This article is a metaphor, trying to distinguish usage for "fun" versus "profit" as a straw man. Based on the outcome, she may indeed "seek more lay".

Now having seen the picture next to her review, I think regardless of how tax laws are interpreted, she is free from any tax liability whatever.

What's the story here? (5, Insightful)

east coast (590680) | more than 7 years ago | (#18663269)

So if you make real money from virtual goods you'd have to pay taxes?

Am I missing something here? So you make real money for selling a virtual product. I don't see this any different from paying real taxes on other virtual products in the past such as profits gained from 1-900 numbers. Why is there even a question as to the taxation of these funds?

Re:What's the story here? (1)

zyl0x (987342) | more than 7 years ago | (#18663309)

She wants people to pay virtual/real tax on virtual items sold for virtual currency. Her example is that a "virtual sword" has "real market value" because it can be traded IN GAME for a virtual currency, ie: gold.

It's preposterous.

Re:What's the story here? (1)

east coast (590680) | more than 7 years ago | (#18663503)

That's not the way I'm reading it: FTA "I argue that players of games like WoW should be taxed if and when they cash out--that is, on real market trades. That approach would allow those playing for entertainment not be taxed on their game play (beyond the tax they already paid on the money spent on the game), while catching most profit-seeking activity."

If you're not cashing out she's saying there is no problem. I agree.

Re:What's the story here? (0)

zyl0x (987342) | more than 7 years ago | (#18663597)

Also FTFA:

In [my] paper, ... I discuss two of the issues: the taxation of loot "drops" and the taxation of exchanges within the game, such as the exchange of a virtual sword for gold.
See? She's not only talking about taxing real profits, she's talking about taxing virtual profits as well! I agree with taxing real profits, but taxing in-game, virtual profits?? Give me a break!

Re:What's the story here? (1)

MeanderingMind (884641) | more than 7 years ago | (#18663843)

Just because she's talking about it doesn't mean she's supporting it. She discusses that as an issue, but as the GP says her arguement is simply for taxation upon the aquisition of real world income from virtual items.

Re:What's the story here? (1)

east coast (590680) | more than 7 years ago | (#18663849)

No, she's saying that there are (mostly administrative) reasons it's not practical and that taxation should be applied when virtual assets are turned into real cash.

If you take the pains of reading the sentence after your quote: "From a policy perspective, my view is that drops and purely in-game trades should not bear income tax."

I know it seems like she contradicts herself in several ways and I have to admit I think the article is poorly written. I think a rewriting of this article would clear up the controversy.

In any case, we are debating over a blog. It's not like this is going anywhere aside from the delete bin eventually.

Re:What's the story here? (0)

Anonymous Coward | more than 7 years ago | (#18663861)

She discusses it, yes, but just enough to sad that it's a bad idea.

Jeezus, how many times can you be wrong on this one article?

I agree with taxing real profits

Do you? Because in your earlier post ("Wow, what an idiot!") you say that there can be no profit because it's "illegal" to sell virtual items.

Posting anonymously because I already modded you down once in this article, and I'm out of mod points to slap you down again.

Re:What's the story here? (0)

Anonymous Coward | more than 7 years ago | (#18663589)

No. What the fuck is wrong with you? Do you lack basic English comprehension skills, or are you just fucking stupid?

I argue that players of games like WoW should be taxed if and when they cash out--that is, on real market trades. That approach would allow those playing for entertainment not be taxed on their game play (beyond the tax they already paid on the money spent on the game), while catching most profit-seeking activity.

Re:What's the story here? (1)

Firethorn (177587) | more than 7 years ago | (#18663677)

traded IN GAME for a virtual currency

No, her point is that the player could theoretically put said sword up on EBay*, and sell it for real world dollars.

A step more distant would be to say that since you can establish a trade rate between game 'gold' and US dollars and you can also find the average going rate of said sword in gold**, you can, through an amount of wrangling, find the sword's value in US Dollars.

Example: 10k 'Gold' goes for $20, on average. Some smucks pay $50, some pay $5-10. But the average is $20

Said sword goes, on average, for 1k gold. It's 'real world' value could be assessed at $2.

The thing is, it's scarily easy how real world markets interface with these virtual ones. Then again, I own thousands in mutual funds, and my only representation of said funds is by my online accounts and the occasional statement mailed to me.

*Or competitor
**Think blue book

Re:What's the story here? (1)

zyl0x (987342) | more than 7 years ago | (#18663785)

I think the obvious fact that these situations are so poorly defined, should be ample proof that there is no way a tax should be introduced to these "markets", if you can even call them that.

profiteering... (0)

Anonymous Coward | more than 7 years ago | (#18663293)

I could see them wanting to *cash* in on the action when I convert my virtual money to hard currency, but what is implied is over the top. Maybe next tax year the US IRS will accept payments in WWE (you know that would actually get me motivated enough to buy and play the game)!

Write Offs (4, Funny)

JavaLord (680960) | more than 7 years ago | (#18663353)

Does this mean if I have an epic ninja looted from me I can write it off?

Re:Write Offs (1)

khallow (566160) | more than 7 years ago | (#18663439)

No, if I understand correctly. You would only be taxed on your real world profits and that epic never turned into cash. Besides epics aren't transferable, right? So there's no way (unless you sell off the account) for someone else to use those items.

Re:Write Offs (1)

Wingnut64 (446382) | more than 7 years ago | (#18663771)

Not only that, you could probably report it to the police, FBI or INTERPOL.

Re:Write Offs (1, Insightful)

Anonymous Coward | more than 7 years ago | (#18663969)

More interestingly, I'm "investing" $15 a month to play WoW. I haven't turned any profit from that yet so can I claim that as a loss on my income taxes?

Why Not... (1)

Greyfox (87712) | more than 7 years ago | (#18663427)

Just tax the sales like any other income at the time of sale? Income from sold items, virtual or otherwise, is supposed to be declared anyway. So just tax the sale when it happens on Ebay, which you should be doing now anyway.

Unless of course you're trying to make a land grab for people who you would not normally be able to tax, like all those Asian gold farmers. That's the only logical reason I can think of why you'd want to put that burden on the game companies.

This is not hard (5, Insightful)

Sycraft-fu (314770) | more than 7 years ago | (#18663433)

It is real, real simple: If you make money doing something, you owe taxes on that. That's really all there is to it. You can cover all the in game situations with that. Spend hundreds of hours in WoW getting gold to spend on things in game? No tax, you didn't make any money. Spend hundreds of hours getting gold, that you then sell to another play for actual dollars? You owe tax (income and perhaps sales depending on the location) because you made money.

It really is just that simple. You don't pay tax on what you do in game, any more than you pay tax for coding on your computer. You pay tax when you sell something in game. If your time spent in game is not for profit, there's no tax. Likewise if you write something and release it in to the public domain there's no tax.

This is not a hard concept, and from everything I've seen the IRS agrees. They want people to report profits made form games, just like they want profits from eBay and so on. However no, they aren't going to start taxing items in the games themselves, that makes no sense.

This doesn't require an economics degree, doesn't need all kind of theory related to what the game is like and so on. When you make money, you pay tax. No money, no tax.

Re:This is not hard (1)

lionchild (581331) | more than 7 years ago | (#18663691)

Not hard, just confusing. Here's why: The government can only tax 3 things. Tangible things, intangible things, and that which is real.

Translation: Real - having to do with real estate, tangible - having to do with objects you own, and intangible - having to do with certficated monies, like stocks, bonds and similar assets, things you can't physically touch.

So, that being said, perhaps all the confusion is coming from the fact that all this vitual property and assets are being thought of as intangible. Of course all this begs a question: Is this intangible property based on being located in the US, or if a server is located in another country, is that taxible or untaxible, the same way money in an off-shore bank account is untaxible?

Re:This is not hard (1)

NealTse (1086091) | more than 7 years ago | (#18663701)

For a community like Second Life that might be feasible as exchanges are permissable. However with any MMORPG, like World of Warcraft sale of in game commodities violates the EULA, read illegal within that realm. It's not something that's enforceable. If I traffic illicit narcotics into the USA, I'm NOT going to report it for tax. Really now. If the IRS hopes to make much money taxing WoW items on ebay, there's no surer way of killing that kind of transaction as the GM's will catch wind of it and ban to all hell.

Re:This is not hard (2, Insightful)

CastrTroy (595695) | more than 7 years ago | (#18663991)

This may work, but can you count your time invested as a write off? Can you pay yourself a salary for the time you spent in the game, essentially negating all your profits? Maybe even put yourself at a loss to offset that you don't want to pay as much taxes on your real income from your real job. If they want people to pay taxes for stuff that they do in a video game, then the time spent on the video game should count as working, and should be deductible as such, as should the fees for playing said game, and the cost of the game, and the computer to run the game on, and the internet connection required for the game. See where I'm going with this?

Whose tax laws apply? (4, Interesting)

Anonymous Coward | more than 7 years ago | (#18663437)

Hypothetically, I could live in Canada while the WoW servers I play on are housed in the U.S. but do business with a guy in Germany whose playing through a proxy in France.

OK, so thats a bit of an improbable example.

Try this on: In Canada, I can buy computer hardware from Alberta - which has no provincial sales tax - and have it shipped free to my house in Ontario - which has some of the highest provincial sales tax in the country - and pay (*drum roll please*) zero provincial sales tax. Thats not improbable; it's real. I built my last computer using components I purchased in this way. I'm sure lots of people in lots of countries do this. This is because governments cannot rightly decide where the tax needs to be applied, and frankly, the federal government cannot force any province to implement a sales tax to solve the problem.

So whose tax laws apply, and how do we enforce them?

This article might work in theory, but rarely do authors like this think about real world application.

Sadly, they often end up in government.

Re:Whose tax laws apply? (1)

Applekid (993327) | more than 7 years ago | (#18663631)

" ... and frankly, the federal government cannot force any province to implement a sales tax to solve the problem."

You mean like fines, paycheck garnishing, jail time?

Federal governments hold power over local governments by making it worth their while.

"Gee, local-government-A, you sure like that education grant, don't ya?"
"Yes, it's great for getting the citizens to be well educated and productive in life."
"That's great. By the way, we want you to teach creationism alongside evolution in your classrooms."
"You can't make us."
"I guess you're right. I guess we'd better leave. Oh, and, let's pick up those grants on the way out..."
"No, wait, I think we could find a compromise..."

Taxation without representation!!! (1)

physicsboy500 (645835) | more than 7 years ago | (#18663441)

Would that mean your online WOW character would get to vote?!?

They'd probably end up voting Buchanan on accident anyways!

The nice thing about articles like this... (3, Funny)

xxxJonBoyxxx (565205) | more than 7 years ago | (#18663485)

The nice thing about articles like this is that they give us a handy way to figure out who should go up on the wall first when the revolution comes.

Why are taxes neccessary? (0)

Anonymous Coward | more than 7 years ago | (#18663527)

A government taxes its citizens in order for provide infrastructure
for the citizens - water, waste disposal, police, fire department,
military, etc.

What services exactly is the government going to provide in a
virtual world?

The inhabitants of the world are already taxed - it's called the
monthly charge.

Wait wait... (0)

Anonymous Coward | more than 7 years ago | (#18663557)

First show me a law saying we have to pay income tax and then we'll talk about applying income tax to the games I play.

You're missing an important point.. (2, Insightful)

zyl0x (987342) | more than 7 years ago | (#18663559)

Everyone here seems to be thinking that she's only talking about taxing real profits from virtual sales.

"..the taxation of exchanges within the game, such as the exchange of a virtual sword for gold.
Read this statement carefully. She's not talking about bricks of gold from Knox, she's talking about in-game currency. For those of you familiar with World of Warcraft, she's talking about taxing player-to-player trading. Example; I find some cool world drop, and trade it off to another player for 500 gold. She's saying that in this situation, I should be taxed for making a virtual profit!

It's insane!

Re:You're missing an important point.. (0)

Anonymous Coward | more than 7 years ago | (#18663699)

Once again, you're a blithering moron who can't even read.

From a policy perspective, my view is that drops and purely in-game trades should not bear income tax.
Read the whole fucking article. Or please go back to Digg with the rest of the brain-damaged children.

Re:You're missing an important point.. (1)

east coast (590680) | more than 7 years ago | (#18663975)

I also had this same debate with the same exact user. Why am I not surprised to find that this has gone from a rational discussion of the article into a rantfest? Oh, it's because this is slashdot.

Re:You're missing an important point.. (1)

Firethorn (177587) | more than 7 years ago | (#18663941)

It's an example of an extreme point, such as may be proposed by a extreme taxer. Later on she talks about applying taxes only when 'cashing out' into real money.

I wonder about the usage of the word 'lindons'. I assumed this meant Lindon B Johnson, but he doesn't have any currency to his name. 'Franklins' would have been clearer.

Or is lindons the currency of second life? - Oops, turns out it is!

But it's a little clearer here, as there looks to be an official method to translate lindons into dollars. $250 Lindons to a USD is actually better than many economies.

Still, some scary stuff.

MMO = Real World (1)

Wingnut64 (446382) | more than 7 years ago | (#18663581)

Because economy of MMOG's so closely mirrors the real world it is natural to tax my World of Warcraft income just as they would my earnings in legal U.S. currency. I'd write more but I need to go outside and earn money by killing basilisks and selling their eyeballs.

Re:MMO = Real World (1)

alexgieg (948359) | more than 7 years ago | (#18663871)

I wonder what my Reputation Level with the IRS is. From Hated to Hostile it's 36,000 points. At 1 point per tax filling that's a long path ahead.

Damn, I hate grinding.

Re:MMO = Real World (1)

Wingnut64 (446382) | more than 7 years ago | (#18664007)

Good thing we all have Diplomacy.

My thoughts (1)

dmsuperman (1033704) | more than 7 years ago | (#18663601)

I think that if you make virtual money, you should be taxed virtual money (if you're going to be taxed at all, that is) and if you make real money you get taxed real money. If the virtual government (aka game maintainers) don't decide to tax you, then they don't tax you. It wouldn't really make sense to tax you in the game, since the taxed money wouldn't really go anywhere, so you'd basically just be inflating everything to no benefit.

Farming (1)

howman (170527) | more than 7 years ago | (#18663669)

So if i spend countless hrs farming plants to sell at the AH and the AH gets their cut on a sale, then I sell the gold profit I make outside the game, I pay tax on it, isn't the AH part of the cycle and responsible for filing earning reports directly associated with funds going outside the game?

Come on, it's a freekin' game. What about taxing certain other 'services' that occure in the game. Things like... Sex... So I pay some pretty warrior in game to sit real close to my Elf and 'Chat' with me... Is the Warrior legally responsible for paying tax on the Gold that I pay her with if I bought said gold from outside the game.

My intellect is dizzying.
I better stop before I change my mind and stop playing WoW.

Re:Farming (1)

brkello (642429) | more than 7 years ago | (#18663777)

No. Learn to read. Selling gold is against the ToS. You shouldn't be selling the gold in the first place so the AH has nothing to with you being taxed on your income.

If you paid the Warrior with gold then no, of course they wouldn't have to pay taxes. But the person who sold you the gold for real life money would have to pay taxes on that.

It is really simple...I don't understand why people don't get it. You make money and you pay taxes on money. The end.

Educated opinion on the matter (0)

Anonymous Coward | more than 7 years ago | (#18663687)

I wonder what Lewis Carroll would say on such a topic, how much

Hack account == tax loss (2, Interesting)

RichMan (8097) | more than 7 years ago | (#18663725)

So I play WoW. My time investment becomes unrealized gains as I have not made a real world transaction.

Then my account gets hacked. All my stuff destroyed and definitly converted to real world market value.

Does this mean I get to declare a loss for tax purposes?

Also this means that online time is creating value.
This would mean your payments to play are deductable.

I agree, not enough taxes. (1)

PixieDust (971386) | more than 7 years ago | (#18663729)

As a Wow player, and as someone who also played Everquest heavily, I think things like this are absolutely ludicrous. Nevermind that we're already taxed into poverty, now let's start taxing our virtual entertainment.

Apparently the tax I paid on the money I made at my job, then the tax I paid on the car that drove me to the store, the taxes I pay that (laff) "built" the road I drove on, the sales tax I paid on the game itself, the tax I paid on the fuel for my car, the tax that i pay on the electricity in my house, the tax I pay on my house, the tax I paid on my computer which I play the game on, then of course the tax for the internet connection also required to play the game, aren't enough, so my play time gets taxed too?

WHen will it end? I know, how about a breathing tax. Gotta fund the planting of all those new trees somehow right? Gotta keep air to breathe! Wait wait no I got it! Let's tax death! If you die, you have to pay tax! YES! What? There's already a death tax? Damn! I so thought I had that one.

tax credits (0)

Anonymous Coward | more than 7 years ago | (#18663743)

I wonder, if they can tax for income gains i wonder if you can write off losses as credits ;)

cheers!

Hell, they have someone is wow trading sex. (1)

Shivetya (243324) | more than 7 years ago | (#18663769)

http://epicslut.ytmnd.com/ [ytmnd.com]

(warning horridly loud attached music on that site)

Real World Penalities... (1)

creimer (824291) | more than 7 years ago | (#18663781)

So if a user beat the crap out of a virtual tax collector in WoW, would the user go to a real jail? That would take the fun out of the game.

There has to be an upside (1)

sorrydaijin (855696) | more than 7 years ago | (#18663807)

If you are gonna tax us, can we get subsidies for farming. I am prepared to move to a virtual red state if that is necessary.

And to second what half the people have been saying, I want an ounce of wahatever this woman is smoking.

More complicated than even she implies... (1)

coolmoose25 (1057210) | more than 7 years ago | (#18663845)

Actually, if you want to take this to it's logical conclusion, it should get WAY more complicated. For instance, suppose I spend a bunch of time making widgets for sale in SL... When I cash out the Lindens I got for that work, I should be taxed on that like regular income... but what if I speculate in the "land" market? Suppose I buy a really cool "house" in SL and then sell it later for more Lindens than I bought it. Should I be taxed on that at the 15% rate for a long term gain (assuming I held it for the required minimum time), or as regular income? If I "contract" with someone to build me a cool new widget, and I'm relatively certain that they are going to cash out their Lindens on it, do I have to issue them a 1099? If I make a comfortable living making and cashing in Linden dollars, can I write off all my expenses - including my Internet access - home office, etc? And worse still, suppose I blow a whole bunch of Lindens on bad real estate - Can I write off the capital losses on my taxes, even though I never have a transaction that cashes out the lost Lindens?

Best case? The IRS leaves this whole mess alone and doesn't touch it. Worst case? They get involved in it (they may have no choice if people start doing capital losses and the like) and most normal people simply ignore it and let the IRS try and find them. It would mostly work like my State taxes where they ask me about my "Use Tax" - you know, like when I go to New Hampshire and buy liquor, I'm supposed to pay my state "use tax" on that at the same rate as the sales tax... Those boxes are miraculously always 0 on my tax return... nope, no sir, don't drink, certainly not the Crown Royal, those empties all belong to my no-good brother-in-law... but here's a cool purple velvet bag for your trouble...

Finally! (0)

Anonymous Coward | more than 7 years ago | (#18663847)

...And people who kill each other in multiplayer games should go to jail! That's murder for Christs sake!!

Treat it like gambling (1)

insomniac8400 (590226) | more than 7 years ago | (#18663851)

I am no gambler, but with gambling you are supposed to claim any earnings on your taxes and if you win enough the casino collects the taxes on the spot. Trying to implement a sales tax inside a game or something stupid like that is pointless. If treated like gambling, you wouldn't have to worry about who is a casual gamer and who is in it running a business because the casual gamer isn't going to be pulling any significant money out of the account, while an business would be.

Inventory treated as income (1)

michaelmalak (91262) | more than 7 years ago | (#18663853)

A lot of comments say something to the effect of "of course if you cash out in US dollars you must pay taxes". It's not that simple because according to the IRS inventory is part of taxable income [irs.gov] . Thus, one has to start looking at intent. Past commercial activity would be a clear marker of intent to sell in the future for US dollars what one's virtual character possesses. But what of inventory being built up prior to the first sale? That's where it becomes difficult to distinguish between an avid fan and a business enterprise ramping up.

What happens in Second Life stays in SL unless... (1)

Glasswire (302197) | more than 7 years ago | (#18663865)

... you take it out in US dollars and enjoy it in the real world. Hmmmm. So, if I travel to Country X and earn the equivlent of $3,000US in local currency - BUT spend it at a resort in in Country X, the IRS doesn't care? I think they do, so Second Life and the other alt realities are getting unique treatment, since it does appear that if you leave what happens in SL there and don't bring it home, the IRS doesn't care.
Now, Leandra Lederman at the TaxProf blog seems to take a more strict interpretation - if you spend money on things in SL that are not 'game' things (not 'fun' I guess, although many would find making money a 'fun' or 'game' thing) that those would be taxable. I don't doubt that corporations that have done press conferences and product launches in SL have already real-world expensed these (not the Linden dollars, but the media consulting companies fees - which would have rolled in any US$ costs for buying Linden dollars to rent space, etc).

BTW, I gave a lecture on SL recently (uncompensated, you tax spooks!) in which the most interesting question was about whether people could use SL to launder money. My first reaction was that from the criminal's point of view, SL being a cashless society (all SL transactions are theoretically loggable and therefore external authorities could presumably subpoena the logs from Linen Labs) however, if they chose some classic real world money laundering techniques (buy or invest in a business, take the money out in proceeds and maybe even launder it again) it might make it hard enough to follow that SL might be viable for this. It's certainly a good way to get money moved internationally - except that it comes out in US$.

Bwahahaha (2, Insightful)

Leroy Brown (71070) | more than 7 years ago | (#18663869)

I can't wait to see WoW game and monthly subscription, PC hardware, video cards, internet connectivity, etc. written off as business expenses!

Value vs. Income (1)

Kelz (611260) | more than 7 years ago | (#18663943)

So, if my account gets closed by blizzard and I had 10000 gold on a character, can I then sue blizzard for the real world value of the gold?

On the other hand, if I actually report income as coming from wow gold, does blizzard then get to sue me for selling their intellectual property (fraud)?
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