Lawmakers Trying to Head Off Massive Taxation

An anonymous reader writes to mention a Reuters article about a lawmaker's attempt to stop the Government's interest in taxing Massively Multiplayer Game content. R-New Jersey Jim Saxton is cautioning against exploring the taxable status of in-game items. From the article: "'The goal of the forthcoming Joint Economic Committee study is to help lawmakers understand the issues involved and head off any premature attempt to impose a tax on virtual economies,' he said. Under current law, Saxton said if a transaction takes place solely within a virtual world there is no 'taxable event.' Dan Miller, chief economist for the Joint Economic Committee, said earlier this week that the committee's study would start with a blank slate and be completed by the end of the year."

Comments

No value?

[BadAnalogyGuy]

If I die and leave a taxable estate, you can bet that the government wants their hands deep in my pockets to extract their pound of flesh, even if there is no actual money changing hands.

Just ask any farmer with land holdings.

Re:No value?

[voice_of_all_reason]

That's why you have to pull all of your money out of banks when you get sick enough and liquidat everything else. Cash is hard to trace as long as your heirs do not have an affinity for blind. It mean, it only makes sense, right?

Re:No value?

[Anonymous Coward]

There is REAL property changing hands when you leave an estate. The point they are making is that there is nothing physical or "real" being exchanged with the virtual transaction.

Re:No value?

[iblum]

even if you rez at the graveyard?

Ira

Re:No value?

[Nevyn]

If I die and leave a taxable estate, you can bet that the government wants their hands deep in my pockets to extract their pound of flesh, even if there is no actual money changing hands.

Just ask any farmer with land holdings.

There are significant limits that need to be reached before this happens. Even before Bush's proposed removal of the Estate Tax (this is in the millions ). Can you provide any actual evidence that farmer's are losing their land as it moves to the next generation (Bush talking points are not data).

The Estate Tax is one of the best progressive Taxes currently, removing it in favour of other taxes would be an insane gift to the very wealthy (no surprise Bush wants it).

Re:No value?

[Anonymous Coward]

The point they are making is that there is nothing physical or "real" being exchanged with the virtual transaction.

You mean like when money in a bank account (not coins and notes, just numbers in a computer system) is electronically transferred to buy software?

Re:No value?

[|/|/|||]

Exactly. Anti "death tax" complainers always trot out the hypothetical situation where the family loses the farm, and therefore conclude that we shouldn't tax inheritance. I would like to suggest that, instead, we just raise the limit. Let's make it, say, 100 million. Anybody who inherits a farm (or anything else) worth more than 100 million dollars cannot seriously complain about having to pay taxes. That limit may sound awfully high, but the real point of estate taxes is to prevent families from becoming gradually richer and richer over generations in order to become an aristocracy.

Oh, and before anyone laughs their way to the bank, the kicker is that anything above 100 million is taxed at 100%. All of it. Bill Gates dies, he can't leave more than 100 million dollars worth of assets to any one person. Bill can't take it with him, and nobody who complains about inheriting *only* 100 million dollars can possibly be taken seriously. Here's a giant leg up over everybody else - if you want more you have to earn it.

Re:No value?

[smbarbour]

I am by no means a Bush supporter or wealthy by any standard, but I do oppose the estate tax. The reason for opposing it is because the contents of the estate are assets that have been accrued AFTER taxes have already been taken. What REALLY needs to be done is eliminating all of the loopholes in the income tax system.

As it is now, the estate tax is a kind of comeuppance for those with money and utilize the loopholes year after year. Even though the wealthy that don't utilize the loopholes are very rare, they will ultimately have the assets double-dipped when the death bell tolls.

Re:No value?

[Anonymous Coward]

Fuck you. If I work my ass off and aquire wealth - the system deserves none of it other than the taxes I already paid.

I guess you lean on "the greater good" because you can't get your shit together without help.

Re:No value?

[budgenator]

People tend to learn via reward and punishment, and a 100% tax would most certainly be punitive; why would you punish people for being successfull and reward them for being failures? The other point is that the inheritence is being inherited, with your system it's being inhertited by the government rather than who the dececed choose

Re:No value?

[TheGavster]

There are some transactions that result in no real movement of money. I work for my employer, who pays me via direct deposit. Their bank balance goes down and mine goes up (all on a computer somewher). I go and buy a song off iTunes, paying with my credit card (all electronic). I pay the bill via my bank's web site, again, an electronic transaction.

You could also play WoW, which tracks your gold stash in a computer somewhere. You can farm some gold, changing a number in a database, much like the direct deposit transaction. You can then go and buy an item somewhere, again via an electronic transaction.

Assuming that I was telecommuting to my job, the only difference between that and WoW is that Visual Studio and Eclipse don't have such shiney graphics.

Obviously, there should be some sort of distinction created, because to the educated observer one is a game and the other a job.

Re:No value?

[Nevyn]

The reason for opposing it is because the contents of the estate are assets that have been accrued AFTER taxes have already been taken.
...
the assets [are] double-dipped when the death bell tolls.

They aren't "double-dipped" they are taxed as they move from one person to another, like everything else (although Estate Tax is much less). If I earn $X, on which I paid Tax, if I buy something I pay Sales tax on it and if I pay someone to renovate my house I also pay taxes on that, and they pay income tax ... and no one is shouting "OMG tripple-dipping".

The same is true in the other direction, if you take your pay and buy dividend paying stocks you pay taxes on those (although Bush has brought out the "double-dipping" talking point here too, to lower that). If you buy something with your post-taxed income, and sell it later for more you again pay taxes.

From the Tax system's point of view, your death is just a large one off piece of income for someone else (although, again, often Taxed much less than regular income).

One of the ideas behind the Tax system, is that you convince people to do certain things with their money. So you do want certain "loop holes" in income tax, so that people use their income to invest in things to get more income ... like buy a house. This creates a stable economy. So although I agree in general that the wealthiest aren't paying as much as they should, removing all the loopholes so people's income couldn't grow easily would be a terrible idea (and if it can grow, then you need some way to make it go down again or the wealthiest get all the money).

Re:No value?

[hey!]

If I die and leave a taxable estate, you can bet that the government wants their hands deep in my pockets to extract their pound of flesh, even if there is no actual money changing hands

Huh? If you take your money and use it to fire your funeral pyre, nobody will be taxed. If you transfer it to somebody as an inheritance, then that person is taxed -- not you. You're dead, so you can't pay taxes.

Now, with respct to family farms, lets go over this one last time; the fact is very, very few people inheriting farms or even family businesses pay the estate tax.

Figures from the IRS in 2004 show that in that year, across the entire United States, there were only 440 estates where the majority of the value was in a family farm or business. This was 2% of all estates taxed in 2004. There were a total of around seven thousand estates that had some business or farm component, except for the 440 mentioned above, all these estates were made up of a majority of liquid assets. Presumaby in in the 95% of the cases where business/farm estates consist of a majority non-business assets, the inheritor can keep the business by liquidating some of those assets.

But what about those 440 estates? How many small familiy farmers in this were put out of business? Probably none or very few.

Of those 440 estates, the vast majoirty (the 350 valued at $1.5M to $2M) paid a rate of 1.6%. I'm leaving out estates of less than $1.5M because they pay 0%. So if you were a family farmer or small business owner who inherited a $2M estate, you'd have to come up with $32K. Assuming you came to this with no liquid assets of your own, and received no cash equivalents in your inheritance, that's a lot of money. However even in this worst case, it wouldn't be difficult ot raise $32K with $2M of collateral, if you have a half way viable business.

Republicans like to argue as if everybody paid the top rate of 47%. How many farm or business estates paid this rate in 2004?

None.

The highest rate paid on any business or farm estate in 2004 was 22.2%; this was paid by a grant total of 30 estates in the entire country, each of which was valued at over $20M.

It is possible that some of these 30 inheritors had to sell the family business. However as these would net over fifteen million from the sale, they are not exactly starving.

Now, those figures are two years old. What about family farmers today? Well, as of 2005, the exemption is $2M. And if you are a farmer, you get to exclude the value of your land and equipment before you start counting towards your $2M exemption.

By the way, notice how assiduous congress is in raising the exemption for estates from $1.5M to $2M, and how it contrasts with the lack of inflation indexing on the alternative minimum tax, which more and more middle class people pay. Adjusted for inflation the $100,000 benchmark used in 1970 would now be more than 5x as much in current dollars. The people at the lower end of the AMT range don't have anything like the tax shelters that people making over half a million do.

So, this year we can expect only 200 or so farms to come under the estate tax, and that will only apply to cash, not the farm or equipment, and only cash over $2M.

Now you can argue the estate tax is bad policy. You can even argue that the estate tax is morally wrong. However, you can't argue that the estate tax is bad policy or morally wrong because it puts small farmers and businessmen out on the street.

Re:No value?

[aztec rain god]

I saw a really interesting interview with William Gates II, of all people, who is probably the most vocal proponent of the estate tax. The point that struck me was the whole issue of language, and how the republicans were winning the debate because of their use of the term "death tax". His proposal was to adopt a term akin to "grateful member of society" tax- the implication being that the condition of being born in a society with strong and stable institutions, whether in terms of the education system or the legal system or whatever, necessitates some compensation from those who reap the greatest reward from it. Anyone in a position to pay the estate tax who has the gall to openly complain about it should think long and hard about the society we have, and the condition in which most of humanity exists elsewhere.

Re:No value?

[_Sharp'r_]

The estate tax is bad fiscally because it's negative impact on the economy, wasted money spent on estate lawyers/accountants and financial schemes for avoidance, is way out of proportion to the actual tax revenues gathered. In comparison to other taxes, there are virtually no actual revenue benefits, since almost everyone with that kind of money will pay others to legally avoid the tax instead, leaving those affected generally just those who were marginal and didn't expect to be affected.

It's a stupid immoral tax that doesn't really have much in the way of benefits (in terms of revenue), but acts as a large distortion on the economy in the form of putting money in places/legal fictions it wouldn't naturally go otherwise in addition to being wasted in paperwork-type activities that don't contribute to actual wealth building for society.

So yeah, get rid of it permanently. Why would anyone want to keep it? As some sort of symbolic "Ha ha, we screwed a couple or rich heirs whose parents didn't donate enough to lawyers and accountants!" measure?

It would be much better for all that avoidance money to be spent on something that produces wealth for us all, rather than on useless paperwork.

Re:No value?

[budgenator]

Anyone in a position to pay the estate tax who has the gall to openly complain about it should think long and hard about the society we have, and the condition in which most of humanity exists elsewhere.

Perhaps the one reason most of humanity is in the condition it's in is because most of humanity isn't able to provide a proper legacy for their offspring. Why not admit that those stable institutions would be unlikely to exist if it were not for a societal value system of investing in the future. A society that has puntitive inheritence taxes would seem likely to be one that slips into promiscuious consuption, like those societies with execessive inflation rates. Even Gates has established a charitable foundation, a manuver designed to keep the rable from allocating his legacy rather than him.

Re:No value?

[Mark Maughan]

Money isn't real, it's a social contract. The estate tax is an economic corrector that prevents the growth of an aristocrat class that is forever rich and never has to work. Wealth accumulates without work when interest is better than inflation. It is not fair to get an infinite amount of reward over many generations from a finite amount of productivity over a few generations. Society doesn't have to foot the bill for Paris Hilton's lifestyle just because her ancestors were productive. It is neither beneficial to society nor fair.

Re:No value?

[aztec rain god]

If you want a banana republic with an entrenched aristocracy so badly, why don't you go move to one?

Re:No value?

[Peeteriz]

What punishment ?
After you have died, no force on this earth can punish you in any way whatsoever, that's the domain of Higher Powers.

Re:No value?

[budgenator]

You mean like the United States and the Kennedy's? Seriously my Boss was born in El Salvidor and grew up during a ten year communist revolution, he's seen first hand the effects of punitive inheritence taxes, forced land redistribution schemes, What really happens when farmers are prohibited form automating the production because it might reduce menial farm jobs and a whole raft of commie/liberal appeasment policies and it ain't pretty. Some very close friends of mine won $209 Million in the mega-millions lottery, that means after lump-sum and taxes, they got $89 Million Check; that money isn't sitting in a matteress collecting mold, it's in a wealth-management account, being invested in our economy. The money is being used in a whole spectrum of stocks, bonds and even a direct investment by purchasing a small business. Sure all these redistribution schemes seem to sound nice on an emotive level, at least when your among the nine hunger cannibles voting to eat number ten, but they don't work in practice. You need to take an Economics course and try to stsay awake when they talk about the multiplier effect.

Re:No value?

[budgenator]

Most people think very short-term, like you, some people think longer term. Your thinking about the effects durring one lifetime, people who amass 8 and 9 digit fortunes tend to think along the terms of 3 and 4 lifetimes and that fortune is often the result of 3 and 4 generations of effort. To people who think like this, an inhertitence tax is like stealing the food out of their children's mouths, they are going to protect that money. Right now there is a whole industry devoted to protecting a person legacy from the taxman, so it could easily be argued that inheritence taxes just redisturbute the wealth from the rich to the upper-middle class lawyers and accountants anyways.

Re:No value?

[tgrigsby]

Society doesn't have to foot the bill for Paris Hilton's lifestyle just because her ancestors were productive. It is neither beneficial to society nor fair.

Pardon? How does society "foot the bill"? Seems Ms. Hilton is footing the bill for whatever she purchases. If her money is invested in instruments that put that cash back into play for others to borrow and use to kick start their own dreams, and she profits from that, that's usury, not cheating. So her Dad built an empire, and then chose to leave his hard-earned money to her. He is within his rights to do so, and I would argue that we should defend his right to do so.

If you want to talk about being fair, then let's go with a flat tax, no exceptions, no deductions except for families that fall below the poverty line, no loopholes, and remove the tax cap on programs like Social Security. The overall tax rate could be reduced considerably, and the rich would pay in a proportionate, and therefore fair, amount.

It's easy math.

Re:No value?

[|/|/|||]

A) Allowing you to give people 100 million dollars tax free upon your death is hardly punishment for being successful. I don't see how it's a reward for being a failure either, unless you count the possibility that the person doing the inheriting is a loser.

B)You can still leave your wealth to whoever/whatever you want, you just have to distribute it. If you can't manage to do that, the government can distribute it for you.

I'm not saying that this would be the perfect system, but I think it has a lot of benefits.

Re:No value?

[Mark Maughan]

Pardon? How does society "foot the bill"? Seems Ms. Hilton is footing the bill for whatever she purchases. If her money is invested in instruments that put that cash back into play for others to borrow and use to kick start their own dreams, and she profits from that, that's usury, not cheating. So her Dad built an empire, and then chose to leave his hard-earned money to her. He is within his rights to do so, and I would argue that we should defend his right to do so.

I already given the reason for that, but I will repeat it for you. Mr. Hilton may have been very productive. And he does have the right to provide for his descendants. But when investment interest is greater than inflation this leads to a scenario where all of his descedants lazily accumulate an infinite amount of wealth from Mr. Hilton's finite amount of productivity. There is nothing fair about this. You would argue that Paris Hilton's money funds investment and that is her productivity, but you arguing from your premise. Paris does nothing and is a lazy, worthless drain on the economy. She is a blackhole for productivity.

If you want to talk about being fair, then let's go with a flat tax, no exceptions, no deductions except for families that fall below the poverty line, no loopholes, and remove the tax cap on programs like Social Security. The overall tax rate could be reduced considerably, and the rich would pay in a proportionate, and therefore fair, amount.

I totally agree with a flat tax and I could write 10 more paragraphs detailing how fucked up US taxes are and how congress should have minimal control over the tax rates but they should be controlled by someone analagous to the Chairman of the Federal Reserve who would set rates according to factors such as growth, savings, ...

Surprised you huh? You thought I was a liberal for being for the estate tax. I am for the estate tax because it introduces fairness and naturally corrects the economy and class structure. I also happen to be for the privatization of social security as well as a flat tax. I am a pragmatist, I look at each idea on it's own merits.

Re:No value?

[Anonymous Coward]

Fuck you. If I work my ass off and aquire wealth - the system deserves none of it other than the taxes I already paid. I guess you lean on "the greater good" because you can't get your shit together without help.

But when you and your wife die, why should the ugly little parasites that you call children, who never worked a day in their pathetic overpriveledged lives, be entitled to your great fortune? I would rather have your fortune pay for social programs after you die (giving underprivildeged a chance to make their own great fortunes) and to hell with your kids, let them build their own fortunes also.

Yah know, they are actualy sorta right....

[Thansal]

So long as you only look at those MMOs that the IG currency has an out of game (offical) value (IE 2nd life, Project Entropia), then you do have an actual sale going on....

I know NOTHING about taxlaws and strange things that have to do with interstate/country taxes, however If I were to look at this on the most basic level:

You have 2 people that live in the same state, and use a program like PE or 2nd live, that is based in said state. If there is a sale between these 2 people, shouldn't that be covered by local tax laws?

Re:Yah know, they are actualy sorta right....

[Joe The Dragon]

Most game ELUA's say you can't sell stuff for real money so either that will have to go away or there will a lot of messy court battles over ELUA's.
If you get fined by the IRS for selling something in game even if is not for real money then we may people sueing the game makers for the fees that the IRS is trying to make you pay.

Re:Yah know, they are actualy sorta right....

[Volante3192]

I don't play, so I could be way off on this analogy. I'd like to think of it like savings bonds. They accrue interest, but you only get taxed when you cash out. You can inherit them, pass them around, give them away, whatever, they're only worth is paper until you cash them. Thus, people trading in game things should only get taxed if they cash out.

What I'd be concerned about is if they start letting the IRS audit our virtual characters, where does it end? Can we declare bankruptcy if a character gets erased? Can I use my in game assets as collateral towards a loan: would the bank accept my +3 Sword of Fiery Death if I default on my Prius loan? Can I take a mortgage out on a castle? A second mortgage?

If they crack the floodgates, expect the impending flood. There's people smart enough to abuse the system and they will and Congress is just going to look more stupid as they patch up their VIRTUAL tax laws to prevent abuse.

Plus the headlines would be hilarious. 'Man declares bankruptcy after virtual character stolen' "My house loan was dependant on my online estate.!"

Re:Yah know, they are actualy sorta right....

[Chosen Reject]

I think they are more than welcome to tax my virtual money. Of course, they aren't the government in that virtual world and that would be considered an invasion. So the virtual people could join sides and start a war. That might be a fun expansion for WoW! It'll be like the Yuuzhan Vong invasion in Star Wars. We all thought the Burning Legion were the real baddies, but little did we know these other creatures from an entirely different galaxy were waiting for the stability of the world to get rocked and then they come swooping in with their W-2 and W-4 forms. Then all carnage breaks loose as our heroes find their powers have no effect on Worksheet B of the 1040A!

Oh the insanity! Will someone please think of the virtual people!?!?!

Re:Yah know, they are actualy sorta right....

[Thansal]

well, the specifics was that I am only talking about games where the game currency (LDollars for 2nd life and PEDollars for Project Entropia).

Treating them like bonds does not really work as you can't give some one part of a bond (can you?). It is also technicaly possible to straight up make cash in the games with out putting anything into it (atleast it was in PE, very very difficult and a waste of time, but possible).

It is much more like simply dealing in another currency, and as far as I know, currency converssions are not taxed.

However, at the same time you get to play with tihngs like not having to pay sales tax if you order something from out of state (what about out of country? tariffs?), so do I only have to pay tax on items I buy from some one in my state? Or if I am in the same state as the game company?

Also as a side note, there is no mention of things like taxing gp in WoW (or EQ, CoH, Maple Story, or any of the games where the IG currency does not have an offical exchange rate). WoW GP has no offical real world value, and I think it is against the EULA to sell/buy it.

Re:Yah know, they are actualy sorta right....

[pete6677]

Taking it to the next level, wouldn't that mean your in-game characters get to vote for representatives? That could get interesting. Also, will the government be making infrastructure investments in the virtual world, such as streets and sewers? I would think the citizens would expect something in return for their tax money. I'm sure politicians haven't thought this far ahead, as their only concern is getting their greedy paws on yet another pile of money.

Re:Yah know, they are actualy sorta right....

[sumdumass]

Two people making a sale in a game taxed? What are you kidding? It is a game.

Could you imgaine having to pay sales tax on Baldic Ave or income tax on park place everytime you play monopoly? Does it make a difference if it is a computer version? How about income tax on all the free food from MCdonalds monopoly games?

Taxing online econemies is just stupid. Unless those items are being sold in real life like on ebay for real money. Then it is a different story. Your average level invisibility cloak and morph "become dickhead" spell that is commonly used in chatrooms could be considered something real. butg in game it is a game in the game!@

Re:Yah know, they are actualy sorta right....

[Thansal]

again.

PEDs and LDs have a specific real world value and can be freely traded between the 2.

This type of "game" is the only one being discussed by me.

WoW/EQ/CoH/Etc are not being talked about by me as most people agree that taxing those would be silly.

Re:Yah know, they are actualy sorta right....

[Chosen Reject]

wouldn't that mean your in-game characters get to vote for representatives?

Depends on the outcome of the invasion/revolution. If the IRS comes in with a bunch of level 15 accountants, I am sure the WoW player base can successfully repel that invasion. But once they start dropping down their level 60 auditors things could get messy, especially if they're riding their FBI mounts.

Perhaps we would be able to settle the whole affair non-violently and set up a republic where we would be able to vote, but I suspect it would be a winner take all kind of thing.

Re:Yah know, they are actualy sorta right....

[symbolic]

I would think the citizens would expect something in return for their tax money. I'm sure politicians haven't thought this far ahead, as their only concern is getting their greedy paws on yet another pile of money.

A slight clarification: ... as their only concern is getting their greedy paws on yet another pile of our money. That money has a source, you know.

Re:Yah know, they are actualy sorta right....

[Jonny do good]

If they tax virtual currencies then we should be able to deduct all of our expenditures on video games, computers, game consols, Internet connections, TV, Stereo, game controller, and any other equipment/services that we use to play the games. After all, we are using them in our own personal businesses in order to generate virtual money.

Re:Yah know, they are actualy sorta right....

[budgenator]

Currency transactions can easily be taxable, there are many people who trade currencies like other might trade stocks and bonds. When I was stationed in germany, the rise and fall of the Mark compared to the Dollar was generally predictable, German companies would bid up the Dollars so they'd have them for foriegn trade, and the Dollar would fall as they sold of their holdings to pay their taxes in Marks, If you had the capital it was easy to make money simpley by buying and sell in counter-cycle.

Re:Yah know, they are actualy sorta right....

[sumdumass]

I don't see the difference.

The winning card for a mcdonalds monopoly game that only gives a free bigmac or supersizes any value meal free is worth the price of a big mac value meal upgrade. Does it then count as income because someoen gave you the equivilent of $2.00 or whatever a bigmac costs? And should this be counted at retail price of the bigmac or mcdonalds price?

Now i'm sure someone is thinking that you don't have to count winnings less then a certain amount. It is possible that a person eating every meal ther could reach that amount total. And it wouldn't be a winning if i gave it too you and you used it.

Games shouldn't be cosidered taxible unless you can buy something from a store or someone acting as the store outside the game. Anything inside the game was taxed and acounted for when puchasing the game (IE sales tax for the sale, income tax for the person profiting but only if done outside the game. The experience inside the game was part of the sale for the game, you just need to acomplish certain tasks to get access to it. Even if that means trading with someone else in the game. It is just like any other game and you cannot make the distinction between them.

Gold farming isn't selling gold because the gold is worth something in real life. You cannot buy anything with it (try paying your car loan with PEDs). Even if it is PEds or LDs. It is a trade for the time needed to collect the gold and therefore a service offered by the goldfarmer. No different then hiring someone to clean out the rain spouting in spring. But they have to sell the gold outside the game. This sale outside the game isn't anyhing novel, It is no different then buying heroscape charactors, magic cards or expansion packs to get new levels. A game is a game, pices in the game is pieces in the game. And even if the [ieces can be used in different games, You bought those games and decided to use them together. It is no different then an expansion pack and keeping a charector from one version and giving items to a charactor in another.

If i trade you a sword for 20 gold pieces, It doens't matter if you could take it to your next imaginary world, It is just a game. Just like If i play you at D&D and gain experience levels, magical items or whatever, Nothing has transpired that should be taxible. Now if i goto the store,and buy game pieces for heroscape or magic cards, then it is the same as buying pieces of the game or the game itself. I shouldn't be taxed more because the rare card in my deck is worth $20 to anther player, I paid retail price for the pack of cards and thats that.

Re:Yah know, they are actualy sorta right....

[KDR_11k]

Gold farming isn't selling gold because the gold is worth something in real life. You cannot buy anything with it (try paying your car loan with PEDs). Even if it is PEds or LDs. It is a trade for the time needed to collect the gold and therefore a service offered by the goldfarmer.

No. The difference here is that the company running the game allows you to trade these virtual currencies back and forth into real money. They are like chips in a casino. There are no gold farmers getting these through game mechanics because that money isn't created by any ingame action, you only get it by paying money to the service provider for it.

Re:Yah know, they are actualy sorta right....

[Thansal]

Project Entropia has a Debit Card.

It automaticly subtracts and converts PEDs into cash.

so yes, I can pay my car loan in PEDs.

Never going to happen.

[B5_geek]

Not that I want this to happen, but...

If the government can't get it's collective head out of it's ass to setup/allow for inter-state/inter-country taxation of goods & services; how do they EVER expect to tax imaginary items!

Re:Never going to happen.

[ShadowsHawk]

They tax me for social security and I'm not going to see a damn penny of that.

Re:Never going to happen.

[enharmonix]

how do they EVER expect to tax imaginary items!

Just pay them in gil ;)

Re:Never going to happen.

[Anonymous Coward]

More than that, where is it posted in law or foundation, that all value transfer between parties in society must be taxed???

I'm looking for legal speak here people... Articles, laws, etc....

Is it diseconomic, to leaving certain activities untaxed in a Democratic Republic??? Maybe its just me, but I don't think the Gov. should tax EVERY DAMN THING THEY CAN!!!!!!!!!

So does this mean...

[the_skywise]

That if I get a monopoly in Monopoly(r) that my future games have to be government regulated?

That I have to declare income taxes on all cash received while playing PayDay(r)

That I have to declare my tax status to the IRS when I finish the game of Life(r) and retire?

Re:So does this mean...

[cptgrudge]

That if I get a monopoly in Monopoly(r) that my future games have to be government regulated?

If you sold one of your monopolies (or any other asset) in game to another player for game money, the IRS couldn't care in the least. If you were to accept real money for that transaction, then the IRS would like to know.

This is the way that the law works right now. FTA: Under current law, Saxton said if a transaction takes place solely within a virtual world there is no "taxable event."

With the changes that the IRS apparently wants, would there be a tax on these "untaxable events"? As these virtual economies grow more, they'll approach the scale and complexity of a traditional economy. Granted, they are regulated by a corporation rather than a government, but it could be argued that corporations already control traditional economies to some extent. Once they reach that level, will the IRS start taxing equivalent "untaxable events" in foreign economies as well? Because that's the logical conclusion of it and it seems that we're on that road.

If I have 200 level 60 WoW characters

[WillAffleckUW]

with lots of special armor - and I sell it to other players for real-world cash - I would HOPE that the IRS would come after me.

Let's get real.

Re:If I have 200 level 60 WoW characters

[Anonymous Coward]

They already do.

If you (in the process of violating the terms of service) sell virtual items on eBay, it's income, and you're obligated by law to report it on your filings at the end of the year.

This is hoopla about taxing in-game currency. Basically, every now and then some yahoo with an economics degree dips too deep into the bubbly, starts yammering about make-believe tax implications in gaming, and then everyone loses their head and screams "omgwtfbbq! they're gonna tax mah golds!" when, in reality, nobody is seriously proposing any such thing, there's nothing to tax, no tax law on the books supports such a move, and no court in the land would be idiotic enough to allow any legislation to change that last fact to stand.

Nothing to see here, move along. Politicians and overstudied nerds with too much free time is all.

Re:If I have 200 level 60 WoW characters

[Boogaroo]

Yes, but then it's real cash and a real transaction. Without a real-life transaction, it's worth nothing. You turn off your account and it disappears. Your house doesn't disappear when you move out, someone else gets it. It's real.

Re:If I have 200 level 60 WoW characters

[WillAffleckUW]

I remember when I was playing Diablo II (way better than WoW) and some guy in Hong Kong came on and started popping up giving away all his stuff. He said he decided he needed to focus more on studying, and felt the best way was to kill off his characters and give away all their possessions. Got some cool things then.

Now that I would describe as charity, which is normally not a taxable event, but a transaction did occur, in that various characters got greater value.

And I got some eight-socketed shields and body armor ...

Re:If I have 200 level 60 WoW characters

[KiahZero]

Let's pay attention to what we're actually talking about.

It's not a question of selling virtual goods for real-world currency. Of course that income is taxable. The concern is that this sale is itself a breach of contract.

I'm not a lawyer yet, but I'll argue like one anyway (by analogy). The IRS taxes income from theft, even though that income is illegitimate (just like income earned from selling virtual goods in breach of contract). However, it doesn't tax you for possessions that others acquire, which you could hypothetically steal and sell for profit. Similarly, the IRS shouldn't tax you for virtual goods that have no value unless you breach of Terms of Service you agreed to in order to attain them. It is only once you have breached the ToS and sold the goods that they have any real-world value, so it's at this point that taxes should be levied.

Re:If I have 200 level 60 WoW characters

[WillAffleckUW]

So, basically, you're saying that no harm occurred to Eric Cartman then? I mean, even though a WoW player kept killing him and all the other players over and over and over, it's all good with you?

How can you live with yourself? Tell you what, you go on WoW with your best character and all your stuff and go to a nice dark forest and tell me exactly when you'll be there. Then you drop all your armor and stuff and turn around and I'll whack you upside the head and jack your stuff.

Still convinced I "gained nothing"?

Didn't think so.

Re:If I have 200 level 60 WoW characters

[peret]

The IRS taxes income from theft, even though that income is illegitimate

Has this actually been tested in court? I know they try, but it's a principle of common law that you can't transfer a better title than you have yourself, and you have no title to something you stole.

Re:If I have 200 level 60 WoW characters

[NewWorldDan]

What some of the economics yahoos and politicians always overlook is that these online worlds tend to be very transitory. 3 years ago, Everquest was a big deal. Now, whatever you had in Everquest is pretty much worthless. So if you did start taxing all this virtual economy, there would have to be depreciation schedules, loss reporting, etc. In the end, it's pretty much a zero sum game.

We have to remember that it's a game. Taxing WoW transactions would be comparable to taxing a football team everytime they made a first down.

Re:If I have 200 level 60 WoW characters

[KiahZero]

You gained nothing of monetary value, just like if you steal all my monopoly money.

Re:If I have 200 level 60 WoW characters

[KiahZero]

A quote, apparently from IRS publication 525:
"If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner"

Pulled from http://www.legalaffairs.org/issues/January-Februar y-2006/feature_dibbell_janfeb06.msp

Re:If I have 200 level 60 WoW characters

[ivan256]

I could build a 3500 sq/ft house with 4 bedrooms and 4 bathrooms out of $85,000 worth of materials, live in it for 10 years, and disassemble it into its requisite components which are now worthless and shipped to the landfill... The government would still tax me on the value of that building to the tune of $10k per year or so while I owned it even though no transaction occured at all. How is taxing a virtual item that you could sell for real cash, even if you never intend to, any different?

Re:If I have 200 level 60 WoW characters

[WillAffleckUW]

I think the Chinese Gold Farmers would disagree with you there. They make a lot from the equivalent of doing that.

That you choose not to do it for profit doesn't mean it can't be profitable.

Re:If I have 200 level 60 WoW characters

[Jonny do good]

That is a different type of tax, property tax. I think they are looking at this as a capital gains tax.

Re:If I have 200 level 60 WoW characters

[Jonny do good]

This is how a number of criminals are caught, they cheat on their taxes. While in my undergraduate program the IRS came to recruit people, they wern't looking for accountants to work in an office, they were looking for agents to infiltrate crime and use the tax code to prosecute them. I don't believe the IRS will go after a thief if they pay their taxes, they probably won't even turn you over to the FBI or a local authority as long as you pay them.

Re:If I have 200 level 60 WoW characters

[ivan256]

You're right. I was just playing devil's advocate...

They do tax stock options as a capital gain though, even though no hard currency or goods have changed hands.

Re:If I have 200 level 60 WoW characters

[Anonymous Coward]

Considering that some sports pros get bonuses based on wins and other stats, your analogy is more apt than you might have thought. it's just a game, but money exchanges hands at the end of the day based on that game. At the instant the real money changes hands, real taxes should be levied.

Re:If I have 200 level 60 WoW characters

[Jonny do good]

Stock options have a value that is readily available in the market place or through options pricing models. Granting a stock option is the same as granting a stock (although the value isn't the same) in the eyes of the IRS. If you let the option expire the loss can count as an offset to a capital gain (carry back/carry forward rules apply).

Re:If I have 200 level 60 WoW characters

[ivan256]

Stock options have a value that is readily available in the market place or through options pricing models.

You imply that virtual goods do not. If they don't, obviously they can't be taxed, but the implication is that you can easily determine these items market value.

Re:If I have 200 level 60 WoW characters

[KiahZero]

Those gold farmers are breaching the agreement they made with Blizzard; their profit comes entirely from ill-gotten gains. As I said before, [b]until I cash out by breaching my agreement[/b], it makes as much sense as taxing me for things that my neighbors acquire, on the grounds that I might steal them and thus be enriched.

Re:If I have 200 level 60 WoW characters

[WillAffleckUW]

So, in that case, if you "give" me your car, your dining room table and chairs, your TVs, your computers, and your wife's pearl necklace - then no transaction has happened?

Cool. I'll be over at 4.

Re:If I have 200 level 60 WoW characters

[KiahZero]

The taxable event happens when the goods have monetary value for you. When I buy my car, dining room table and chairs, TVs, computers, and pearl necklace, you haven't gained anything of monetary value. However, if you break the law and steal those goods, now they have monetary value for you and they can be taxed. Similarly, if I consent to giving you those goods, they now have monetary value for you, so you get taxed for them.

Similarly, when you "acquire" virtual goods or currency, they do not have monetary value. Your contract with the provider that you agreed to in order to "acquire" those virtual goods says as much. Therefore, they only become worth real currency when you breach that contract and transfer the virtual goods to someone else in exchange for real currency. Keep in mind that the Terms of Service generally indicate that the service provider maintains ownership of your character and your goods.

Taxing MMO usage

[Anonymous Coward]

Though not directly related to the topic, it would be interesting to explore taxing MMO usage much like how some governments tax other "addictive substances" such as alcohol and tobacco (and sadly enough, gasoline).

so, does this mean I can deduct

[way2trivial]

-my internet connection, my computer purchases, software purchases, etc???

Re:so, does this mean I can deduct

[EMeta]

Yes, yes it would. If you did have to report computer-made virtual income to the irs, everything you purchased to allow you to get said income should be deducted from how much you made. I'm not sure how people who work from an office in their home are taxed, but I suspect that you could get some discount for paying the rent or morgage on that room as well.

And as opposed to some others in this discussion, I do think that an income tax on virtual transactions does make sense. As in many cases in tax law, any small amount should be ignored (net earnings under, say, $2000, per year). I think once games come out where gold farming is allowed (and there can be no doubt that this will happen sooner or later), said game software can keep track of appropriate sums for appropriate countries' servers. (Or many other possible methods.) Now will users be able to get around this, easily? Yes. But just because waiters don't disclose their cash tips doesn't mean they shouldn't. Certainly I don't want goldfarmers to get an effective tax break on income compared to other professions.

what next?

[Wizzerd911]

first of all that heading could have just as easily said MMOG instead of massive...
anyway, I wrote a program in VB that does some fake sales operations and accounting. Are they going to tax that virtual currency too? How about currency I just made up in my head? Who cares, I'd just give away enough in-game currency to a charity (low lvl players lol) that I'd be tax exempt. Oh wait, the game I play is based in South Korea, never mind :)

A new take on an old saying

[SuperKendall]

The only things certian in Life are Death, Taxes, and Server Crashes. Second Life, that is.

Unenforcable

[antifoidulus]

The government has a hard enough time tracking down money laundering in the real world, if they made a tax on virtual items it would simply put a few more hoops in the way of people who want to get real money out of it. IE They would launder it. The people getting money would still wind up with less, but unscrupulous people could make a buck off of it instead of the government. Meh.

Re:Unenforcable

[KDR_11k]

Yes but money laundering is a crime, tax evasion another and all in all you could jail them for quite some time if they did that.

Let's "have a chat" with these guys next election

[Impy the Impiuos Imp]

Who do I vote out of office? Give me a f-ing ballot. Who do I vote out of office? Gimme a name. Gimme a name! >:(

Re:Let's "have a chat" with these guys next electi

[Anonymous Coward]

Just vote Republican. Or, if that whole Religious Right / USA PATRIOT Act thing annoys you, vote for moderate Republicans (also known as "Libertarians").

Intra-dimensional taxation only, please.

[Anonymous Coward]

"No taxation without representation" is one of the reasons the colonies broke from the the British Empire. It's a founding principle of the U.S., so we should preserve and extend this principle to online communities.

All taxation- and enforcment- should happen in-game. Let the IRS set up their own area in Second Life/WoW and hire in-game tax avatars to go around collecting money. If they get robbed and killed by griefers, hacked, etc., then tough luck- they will have to suffer just like the rest of us. If they can enforce tax laws and make them stick IN-GAME (without special privileges conferred by server operators, or resorting to meatspace tactics) then they deserve what they can get.

Besides, collection of taxes has to be followed by use of collected monies for the public good- maintenance of roads, public welfare, social services, etc. They can't just collect and keep it- that's extortion. (then again, might makes right, I suppose.) So for all this in-game tax collection, I'd expect to see relatively safe passages between population centers, a police force to settle disputess, public infrastructure, etc.

Actually, yes, you can deduct them

[davidwr]

IANAL and IANA Accountant, but I believe if you "make money" off of a hobby, you 1) have to declare the income and 2) can deduct the actual expenses.

Making money by monetizing game assets is no different than making a profit by buying and reselling items on EBay. You generally get to deduct costs that are 100% related to your hobby/business such as subscription fees, and make partial deductions for costs that are partially used for your enterprise, such as your computer, subject to limits set by Congress.

If the IRS determines you "labored" to create your virtual world before selling it for US Dollars, they may also hit you with self-employment, Social Security, and medicare taxes. On the bright side, you can open up a self-employed IRA and enjoy other benefits of being self-employed. In the eyes of the IRS, that big island full of stuff is no different than the quilt your mother made from raw materials then sold for a profit on E-Bay.

Here's where things can get tricky with respect to the IRS:
If you barter assets in-game, they probably won't be taxable. But if you barter for a real-world asset, or an asset in another game, they may be. The IRS taxes barters, particularly barter-for-labor or barter-for-fruits-of-labor, as taxable events, just as if the items had been bought or sold for money. Appraising the value of an island full of stuff in one game that you trade for a similar island in another game can be tricky, much like trading two old, collectable manuscripts or paintings.

real world tranactions for access only

[RichMan]

Taxes should apply as normal to real money paid for access to objects in environments.

You already do this when you purchase Microsoft Products. You don't buy anything but rights to access the code under specific conditions.

The only thing needed to track is real world cash.

Stupid Examples:

1) I take my cable connection and count all the bits I dump to /dev/null and claim losses on all the data I failed to analyze. After all there are many companies monitoring traffic and providing reports.

2) Tracking virtual ecomomies mean someone other than the government is printing money.

Re:Let's "have a chat" with these guys next electi

[lasthemy]

On the other hand, Democrats actually understand the internet. As a bonus, they also want to get rid of the payroll tax.

Ridiculous

[festers]

According to Blizzard, I don't own anything inside of the World of Warcraft. Why the hell would I be taxed on property that belongs to someone else?

Re:Ridiculous

[Lord_Dweomer]

According to Blizzard, I don't own anything inside of the World of Warcraft. Why the hell would I be taxed on property that belongs to someone else?

I believe they are saying that while the items in the game don't have value, your time spent acquiring them does, and when you exchange the fruits of your "service" that you provided by acquiring those items for someone else and receive payment for this, that is taxable income.

Re:Ridiculous

[styxlord]

I think you're confusing the actual terms of use with the disclaimer on ebay auctions.

Re:Ridiculous

[KDR_11k]

I think the government doesn't give a damn about how legal your actions are, they know that when people pay real money for anything they want a cut.

Conversion rate how?

[Anonymous Coward]

In order for any taxation to take place in USD, there would have to be a way to discern a conversion rate from game currency to USD. For transactions involving USD to game currency and vice versa this is simple, but for game currency to game currency transactions this would be impossible without some standardized way to convert. I believe that claiming the going rate at unauthorized currency stores would be a hard one to put across. Moreover in the click thru agreement of just about every game, it is stated that the ingame items, currency, etc all belong to the game company. As such, any transaction happening solely within the game would be a sale of an item to oneself. I can't honestly see how that transaction could ever be passed off as taxable.

Re:Conversion rate how?

[Anonymous Coward]

Second Life is unusual in two ways:

1. The items users create or buy in-game
continue to belong to the players. They can,
and do, sell, lease, and rent them for in-game
currency.

2. There are multiple legal exchanges allowing
you to convert Linden Dollars to US Dollars, and
vice-versa. The exchange rate floats from day to
day, depending on the health of the SL and US
economies.

It's like taxing for sex

[ConfusedSelfHating]

Your wife or girlfriend's body is not for sale. However there are some people who would pay money to sleep with her. Only losers use prostitutes, but it takes bigger losers to pay real money for online equipment and characters. The fact that you have no intention of paying for it doesn't matter. It only matters that somebody would.

Collateral - perhaps

[davidwr]

Suppose I'm in the business of making MMRPG items and selling them in the real world. I'm a very small business netting $5,000/month for the past year and a half after taxes.

I decide to expand. I could expand slowly, hiring one talented game-player then, when the business grew enough, another.

Or, I could go to a bank or to investors with a business plan to grow the business at the rate of 2 new player every month until I reach 20 players, then re-assess the situation.

Any lender or investor will want to know how much the business is worth. They will want to know all my in-game assets. A bank may loan me money only if I can put these assets up as collateral. In some cases, the company running the game may have to modify their terms of service for me in order to make this happen.

Revolution

[Zugok]

Taxation without representation

KOL

[jafac]

They can tax my Meat when they pry it from my (Cold Damage), Beaten Up(3), (eXtreme Mittened) hand.

Re:Let's "have a chat" with these guys next electi

[crunch_ca]

Who do I vote out of office? Give me a f-ing ballot. Who do I vote out of office? Gimme a name. Gimme a name!

I know this is off topic, but I think the voting system should be changed so that you can cast negative votes. Basically, you don't care who gets elected as long as it's not X, so you cast your negative vote for X.

Simple Solution!

[vertinox]

Just have your friendly GM go into the MMOG and magically make Gold just for the government.

Might be a problem with inflation if those IRS agents decide to buy mounts.

Neopoints

[Technician]

The goal of the forthcoming Joint Economic Committee study is to help lawmakers understand the issues involved and head off any premature attempt to impose a tax on virtual economies,

How the heck would the government spend a few Neopoints from Neopets?

Maybe the game sites need to be sure the point system in the game is properly listed as having a cash value much like coupons did for a while. Remember when states wanted to charge a sales tax on cents off coupons? The coupons started having a cash value of 0.005 cents each in the USA. You would need to have 200 of them to have a cash value of a penny.

It would take a lot of coupons to have a taxable value of interest to the IRS. Expired coupons have no cash value.

I'm a bit confused

[Endo13]

After reading TFA, it's not completely clear. Are they talking about taxing in-game transactions, or taxing in-game content sold for real world $$? Because the former is beyond ridiculous, while the latter actually sounds pretty reasonable. Of course, then there's the fact that most MMOs make it 'illegal' to sell in-game content for real-world $$ in the first place. The only real exception I can think of is Second Life.

Re:I'm a bit confused

[KDR_11k]

Illegal doesn't mean untaxable.

Re:I'm a bit confused

[Endo13]

No one said it did. Nor did anyone ask if it did or not. So I fail to see what relevance your post has. The part of my post that you're apparently trying to respond to was just a side-note observation that with most MMOs, trading in-game content for real money isn't supposed to happen in the first place. And implied with that was that as a result, it shouldn't be worthwhile attempting to tax this at all. Except perhaps in the case of Second Life, where people create their own in-game content which can then 'legally' be sold for real world money.

And so my real question still goes unanswered - are they talking about taxing all in-game transactions, or taxing real-world profit made off in-game transactions.

in other news...

[Anonymous Coward]

In other news, Capital Gains tax now applies to Monopoly(R)

whatabout losses?

[Anonymous Coward]

Do I get to count losses (due to player theft or otherwise) against my taxes owed as well?

Re:whatabout losses?

[anthony_dipierro]

Do I get to count losses (due to player theft or otherwise) against my taxes owed as well?

Only to the extent of income, and only as an itemized deduction.

The tax is fair

[SpacePunk]

If the IRS accepts payment in game plat, gold, credits, isk, etc...

Tax liability

[Clomer]

Other people have said this, but I'll put it in my own words:

If I ever wind up with a real world tax liability as a result of a transaction that occurred entirely in-game, then my time playing such games is at an end. Period.

I am OK with taxing income when someone sells in-game assets for real world money. This is as it should be. But if I wind up owing the IRS money because I pick up the Sword of a Thousand Truths off of a raid boss in WoW, then my days playing such games is over. I doubt I am the only one that feels this way. Lawmakers take note: you will be harming the economy in a very real way if you tax that.

I want a percentage of the Money in the

[Deliveranc3]

movie scarface...

WTF kind of artform have we created?

An official opinion, on the other hand...

[anthony_dipierro]

Under current law, Saxton said if a transaction takes place solely within a virtual world there is no 'taxable event.'

On the other hand, reporter Julian Dibbell wrote an article on whether gamers should pay real-world taxes on virtual treasures and got a different opinion from IRS's Business and Specialty Tax Line.

"We just had this little discussion," [Mrs. Clardy, badge number 7500416] said, almost giggling. "And it sounds to us like [the online trades you've described] would be--yes--Internet barter."

This stuff is fairly interesting to me. Completely ignoring this "Internet barter" would open up fairly large loopholes in the taxation system. On the other hand, strictly enforcing such rules would be ludicrously burdensome on both the government and the taxpayers. Most likely what we'll see is essentially what we have now. Technically these transactions will be taxable, but such taxes won't be enforced unless someone started really abusing things.

If it were up to me we'd just eliminate income taxes altogether. The whole idea that the government would even consider taxing these innovative economies points out what's so wrong with the income tax. Free trade is a good thing - it should be encouraged, not taxed.

what about playing dopewars?

[Anonymous Coward]

will that become illegal?

Re:Let's "have a chat" with these guys next electi

[Anonymous Coward]

they can barely keep proper track of positive votes as is.

The problem is IP not games.

[bWareiWare.co.uk]

It is fairly easy to argue income tax should always apply. I enjoy my job but that doesn't excuse me from paying tax. Any activity where I end up with more real world cash then when I started it is an income and should be taxed.

In fact as a programmer I could do most of my current work inside secondlife, but wouldn't expect this to save me any tax.

However when it comes to sales taxes it is much harder. When you sell an ebook or video form a website you have to pay sales tax (ignoring all the complex cross-border rules), why should you not have to pay it when you buy an ebook or video inside a 'game' like secondlife.

Any distinction between a scroll of teleportation, a map of the forest kingdom, and a tourist guide to Australia I purchase and read 'inside' secondlife seems arbitrary.

We already pay tax on 'expansion packs' that only confer in-game benefits, why should we not pay tax on in-game purchases that can confer real world benefits.

However simply accepting across the board taxation is only the start of the problem. In lots of games outright theft can be encouraged. How do you construct a tax form for a space pirate? What about cheats, do you have to start locking them up for forgery.

The example of game economies are just an extreme case of how poorly our legal and financial systems can cope with any information economy. In truth sales tax doesn't work as designed for any information assets, in-game or otherwise. Eventually governments will be forced to realise this.

If you want a tax system that makes logical sense (this doesn't appear to have ever been a criteria for any current tax system) it has to be proportional to consumption of physical resources.

Re:The problem is IP not games.

[Endo13]

I agree. If anyone is making a real-world profit off in-game IP then yes, it's fair to expect them to pay income tax on that income just like any other source of income. But if that's what this whole article is about, I don't see what the big deal is. You're already supposed to pay income tax on all sources of income, regardless of their nature. (With a few exceptions, such as 'gifts' from individuals.) Taxing the conversion of Linden to real money shouldn't be all that difficult to do at the time the transaction happens, and as for any other transactions - well, that's no different than other sales through similar mediums (eBay, private sales, etc.) except possibly easier to trace because they all happen online instead of being face-to-face cash sales.

But on the other hand, if they're talking about taxing ALL in-game transactions, well, that's beyond insane.