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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."
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!
"The price good men pay for indifference to public affairs is to be ruled by evil men." ~Plato (427-347 BC)
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?
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.!"
-my internet connection, my computer purchases, software purchases, etc???
every day http://en.wikipedia.org/wiki/Special:Random
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.
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.
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.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
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).
ustr: Managed string API with ave. 44% overhead over strdup(), for 0-20B
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?
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"Every artist is a cannibal, every poet is a thief."
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.
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.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
Taxation without representation
"I just can't sit while people are saying nonsense in a meeting without saying it's nonsense" J Watson, Sci Am 288:(4)51
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.
[javac] 100 errors
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.
"I am the king of the Romans, and am superior to rules of grammar!"
-Sigismund, Holy Roman Emperor (1368-1437)
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.
-- Tigger warning: This post may contain tiggers! --
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.
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).
ustr: Managed string API with ave. 44% overhead over strdup(), for 0-20B
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.
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
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.
Sig cannot be found.
If the IRS accepts payment in game plat, gold, credits, isk, etc...
Steve's Computer Service, Hobbs, NM
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.