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Taxing Virtual Gaming Assets
rijit writes " It appears very likely that taxation of online games assets is inevitable. Quote: 'That's because game publishers may well in the not too distant future have to send the forms — which individuals receive when earning nonemployee income from companies or institutions — to virtual world players engaging in transactions for valuable items like Ultima Online castles, EverQuest weapons or Second Life currency, even when those players don't convert the assets into cash.' "
Since they are taxing virtual goods, we'll pay with virtual money.
The simple truth is that interstellar distances will not fit into the human imagination
- Douglas Adams
If that is the case, will they soon be taxing player earnings from board games as well?
Undetectable Steganography? Yep, there's an app fo
Why do governments tax anything in the first place? It's because public services cost money, and that's a convenient way to of collecting said money (and because they are usually the ones that have all the guns).
I personally don't see how this is any different than, say, taxing sales of Beenie Babies, whose value (like so many things) is also largely virtual.
As a registered Libertarian, I can't say I'm too happy with trends towards new taxation (internet sales tax, etc), but this type of thing may be inevitable as more and more people make significant portions of their income in online environments. Maybe this should be targetted only at assets that can be legally converted to cash?
If they want to tax virtual assets then they should also accept virtual money to be used for tax payments.
Also, do players actually own the virtual assets? Because aas far as I can tell it's the game operator that actually owns them since they can always take those assets away from the player (for example by cancelling their account).
Will they put our characters in a virtual debtor's prison?
Weaselmancer
rediculous.
Paying taxes on virtual goods that are exchanged for real money... That I can understand.
Paying taxes on virtual goods where you don't exchange for real money is stupid.
What, are they going to start looking through my character's inventory, evaluating how much my +10 Sword of Uberness is worth?
One last step remains before you can step into our magical world, forgetting your mortgage, your car loan, and your family commitments. Just pick up form number 34C-XCVII from your local tax office, and let the fun begin. The are only two things that are certain in MMO's of the future: Ganks and taxes.
Ninjas use italics.
If it's taxable -- or otherwise treated like "income" -- does it then get treated like any other "work:"
When I loose my loot, is that now a write-off? (is it like investment depreciation, or a gambling loss?)
Am I running a "business" -- and can I hire in-game "employees" ?
When my skills decline, can I consider myself unemployed?
Can I avail myself of anti-discrimination laws?
Can I retire and collect social security?
When you think about it, it's pretty absurd.
Now I can implement an idea I've had back when the Sim-X and Y-Tycoon games came out... Sim CPA. You too can play in the exciting CPA world. Manage end of the quarter forms for online players in this RTS game. Bonus points for keeping two sets of books and making a little on the side. But don't get caught or you're character will be stuck in virtual jail.
I'm not sure how they can do this. MMORPGs generaly have a clause in the EULA stating that all virtual goods belong to them and have no intrinsic value. If the government decides that they do in fact have value, what happens when a server goes down just after you recieved a valuable item and you are rolled back to before you got it? Can you sue the game's owner for the value of the item? Can these games survive if a hardware failure could result in massive lawsuits against them?
As blizzard has made incredibly clear, all characters, items, and gold, belong to them, and anyone buying/selling gold/characters/items is breaking the policy.
/need/ to make the same claims as blizzard and fight to protect them. Once the IRS starts to tax virtual assets, what's next? If I get someone killed in game can I now be sued for financial hardship? IANAL, but it seems like I would have effectively cost them some of their personal assets. How about Eve and all of the financial scandals we've had stories about. If the in game currency is recognized as having "real world" value, are all of those folks going to court? In short, I think it would destroy most MMOs.
In reality, I think that all MMOs
If you are deriving real world cash from these transactions, likely you are already being taxed on it. I find it a non-issue.
It would be all but impossible to tax a virtual economy of a game system. Why? Because the rules of the economics within the game world are not static. The developers (who are not governmental bodies at all) can change that economy or rule at whim. Raise the drop rate of X item here, reduce the spawn rate of Y item there and it plays havok with the economy until it restabilizes. Also who is to say x gold equals x dollars of real world money? The devs could devalue the market very easily by making any number of changes.
The point at which the government would have any say, is when said virtual item is sold for real world currency. (Ebay and the like.) This is already happening and already being taxed, or at least supposed to be taxed.
Thrall for Senate from the great state of Durotar!
Politicians are like diapers - they should be changed frequently and for the same reasons.
If I understand the article correctly, assets gained in a game would be taxable, even if they are never converted into "real" money. If I had a Second Life business that made 1 million Linden Dollars in a year, then I would be taxed at whatever the U.S. Dollar to Linden Dollar rate is, even if I never take the "money" out of Second Life. To me this is ridiculous -- that would be like me being required to pay taxes on properties won in a Monopoly Game. I may own the whole board, but that does not translate to any wealth in real life.
A better example might be the stock market. Stock in XYZ company that I bought for $10,000 may be worth $100,000 today, but I am only taxed on those "gains" if I sell the stock. After all, who is to say that the stock won't be worth $5,000, or even nothing if the company goes belly up. I think the same should apply with game worlds -- as long as the "money" stays in the game world it should not be taxable, but once the "money" is converted to real money or "real" goods and services, then tax is due. After all, if I have a million Linden dollars in Second Life and the Linden would go out of business (not saying that this is likely, but just as an example), then my million Linden dollars would be a valuable as Enron stock.
I can understand taxing businesses in these worlds that make "real" money, but I think it is a real slippery slope taxing "game" money made in an online world unless the profits are taken outside of the game world.
Beware of Sleestak
The problem boils down to this: Game companies are not enforcing anything about their players' locations. Therefore, their location cannot be proved taxable. (Unless somehow you give all your real contact information to them, which I find unlikely, as they don't want to require citizenship to any one country to be a player.)
THAT makes those games more realistic than even the latest 3D engines!
Every single MMOPRG states in its own EULA that the virtual goods received in game are their own property. Now, even if they can't stop all E-bay auctions, web sites selling currency or characters it doesn't change the fact that the sellers do not own the property to begin with. If anything, its trafficing in stolen goods. The EULA loans you the virtual item for gameplay then you go and sell it for real world currency? Tax the sell, not the game company so those people who do not sell it don't have to pay it. Even in some states illegal drugs are taxable which is enforced on top of a fine in some cases.
It was pretty obvious it was coming, where there's money to be made, there are taxes to be paid (so others can reap some of your benefits too).
There's no such things as free money.
If you look like your passport photo, you're too ill to travel. - Will Kommen
I wonder if I can get welfare for my lvl 2 priest?
Freedom is a state of mind. A mind is a state of being. Stay the fuck out of my mind and my being. - Corporate Avenger
I would have to assume that if they can tax you for virtual earning, you should be able to deduct virtual expenses. If this is considered a viable economy, your monthly subscription fee should be deductable. I would assume that if this moves forward, there is far more money spent on the game than is ever earned in it. It seems like it would be an overall loss for the government.
Jens Wessling
I'm sorry, but who is this homogenous "gamers" category where everyone says the same thing, does the same thing, etc? Has it ever occured to you that maybe two different people can actually have two different goals, two different ways to play, etc?
As far as I can tell, and supported by the backlash against Sony's sanctioning such transactions, most MMO gamers are actually _against_ trading in-game items for real cash. For a variety of reasons, including, but not limited to, the facts that:
- it seems to bring with it not only virtual crime, but real crime as well. (Breaking into someone's RL computer is a RL crime.) See for example the recent instances of keyloggers that, among other harm, stole WoW passwords for the purpose of striping those people's characters of all gold and equipment. So believe it or not, even if the other issues didn't exist, a lot of us would still have a problem with (A) buying something stolen from a fellow gamer, and (B) encouraging the script kiddies to infect even more computers.
- it devalues the achievements of those who actually worked and quested for that
- it fucks up the virtual economy, as in some cases it becomes tuned and balanced for the idiots who buy gold by the thousands instead of for the honest players
- it fills the world with farmers and farm-bots, to the point where in some areas you have to spend an hour to complete even the simplest quest, because the needed NPCs are farmed non-stop by a small horde of farm-bots
- buying a ton of ganker-grade equipment and level 60 characters attracts a certain kind of insecure loser who makes the game worse for everyone else.
- plus, as the lesser problem of whole armies of characters who just don't know how to function at their level, what to do, or what to use. You could group with, for example, a Kheldian (prestige classes unlocked by having 1 max-level character) on COH and they don't even know the elementary basics of playing the game. How'd they get through the whole game once without even learning how it works? Oh, wait, they didn't.
Etc, etc, etc.
So, basically, fuck off. Most gamers do _not_ support transforming virtual assets into real gold, and it's even against the TOS in most games. So you're telling me, what? That because a minority of idiots already ruin the game for the majority of us, let's all be taxed for it? That governments should just assume we're all doing something illegal, and tax it? Well, then how about we assume that you use your car as a taxi (some poeple do, so by your logic it applies to everyone) and tax you per mile, according to how much you _could_ have charged if you actually used your car like that.
A polar bear is a cartesian bear after a coordinate transform.
Little 8 year old Johnny, who plays a game, who's virtual assets are in fact owned by the company that runs the MMO, has to pay tax, on stuff he doesn't own? With no physical attributes?
Last I remember, most MMO's it's against the ToS to trade for real money, so doesn't this law go against the ToS?
Fine tax me, and watch the mmo market burn. I ain't payin tax on stuff I don't own.
Can I claim expenses on potions and weapons and things I require to play the game?
Also, if I slay an opponent and claim his belongings, will I have to pay inheritance tax?
If the IRS really wants to tax these virtual goods, they should explicitly allow for their sale. i.e. have a Blizzard-sanctioned marketplace to trade virtual goods for real money, document the transaction, and send the necessary paperwork (1099, i'd guess). People who earn their own stuff don't have to worry about it, as only the real-currency sale is relevant.
BS. Nowhere in the article does it say anything about the IRS actually trying to do this. No its this Miller guy (who we've heard from before) who insists that its going to happen "real soon now" (tm). Um no. If such a thing really did come to pass it would be held up in the courts for years because the game companies would fight it. Why? Because taxes already cost a lot of time and money. For something that is so overtly illegal for the government to do, they'd be stupid not to fight it.
... and CNET fed him.
This Miller guy is nothing but a troll
The Anti-Blog
Taxes pay for the services we consume that the government provides. They of course pay for lots more services we don't consume, and lots of people consume services they underpay in taxes. But most of us consume lots of services, including military/security/justice services, infrastructure investment, education, that might directly serve our neighbors, but thereby serve us by stabilizing and improving the society in which we live.
So taxes on virtual goods are a way for the government to fund its operations that enable real players to spend time inline. While in the virtual world it might seem like we're not consuming the real world services, but of course we are, though we don't notice. Those have to be paid for.
Though taxing income is a terrible way to pay, compared to others. I prefer a sales tax on all sales transaction. Somewhat lower rates for wholesale (goods resold), to keep transaction costs low and the economy less frictiony. Total exemption for some subsidized goods to protect the poor (and ensure people aren't penalized for not being poor). Like no taxes on raw food, raw cloth, the lowest percentile expenses on public transportation, primary shelter and energy consumed there, and essential healthcare including nutrition and prevention. And a very low rate on pure minority equity transfers, like 1 or 0.01% the full rate on stock trades, unless transferring control of the corporation. That would encourage people to save rather than consume unnecessarily. Which offers more money for investment, by them or by their banks. And actually correlates taxation amounts to the amount of benefit people derive from the country, beyond the crudest basic protections that everyone should have. While making the tax collectable from a much smaller population of vendors, who already keep transaction records without increasing the costs of reporting, and who are much more controllable with the threat of interfering with their business than are the hundreds of millions of humans, many of whom cheat on income taxes. And without invading the privacy of every American, collecting from the aggregate without tying transactions to identites without a court order.
I'd say that since our $12T GDP currently spends about $4T annually on Federal, state and various local scopes of taxation, we could collect about 33% total tax, probably 25% Federal and 8% state/local. States/localities could of course change their own rates. The increased efficiency of the system, including shrinking the leviathan IRS while collecting more of what's due (on a monthly/quarterly basis, rather than annually), would probably afford lowered rates, maybe down to 15-20% Federal. Which extra money would be available for investment. While welfare and other social subsidy expenses could be shrunk, at least the administration which currently processes their income tax as a noncollectable exception, rather than just not bothering with them at all. And those rates balance the budget, without debt, while paying off the huge outstanding debt we've created the past 230 years. Though the vast majority of that debt has been spent the past 6 years, while (not ironically) cutting taxes on those most able to pay them, who benefit the most from our country's expenses.
Note that I'm talking about ripping out the income tax by its roots, and totally replacing it with a simple sales tax.
In virtual worlds, the taxes would be collected only on real money taken in exchange for services. The arbitrary (and impossibly complicated) basis for taxation today, "pay what we say approximates what we spend, or go to jail and/or surrender your property", cannot deal with anything like our modern economy. After military spending, we spend more on debt service than on any other government service, clear demonstration that our revenue system is totally disconnected from our economy and government, while remaining its most essential core.
The US economy has now changed to one unrecognizable to the economists who institued the income tax less than a century ago. It's time to revolutionize the government's income to free the rest of the economy to exploit the opportunities while solving the problems of this new age.
--
make install -not war
The conjugal visit expansion would confuse most online gamers anyways.
Weaselmancer
rediculous.
This is a key point. We're starting to see the first few legal cases concerning property and ownership in virtual worlds, which may create precedents about who owns what and what property rights players can expect. There's really a two-tier economy at the moment, as some worlds allow/encourage ownership and real money trading (Second Life, some EQII servers) and appear to be operating under different rules than worlds in which the ToS bans asset trading, which then moves to grey/black markets. It'll be interesting to see if the notion of IRS interest in real money trading prompts more game operators to create official exchanges than allow them to manage the economic activity in their games. It could also send them in the other direction - outlawing RMT and forcing the IRS to shake down eBay sellers. Either way, this is probably a headache for IGE.
RichM
Data Center Knowledge
With idiotic ideas like this around, the IRS would be raking in trillions...
I don't know about the EULAs for other MMO products out there, but Blizzard is fairly explicit in pointing out that every last character, item, piece of copper, and other property "your" character "owns" is the sole property of Blizzard Entertainment.
Yes, people do sell their accounts on ebay and such, and I do agree that such a transaction is indeed income, but officially there is no value whatsoever to the currency and items in game. If anyone were to be taxed for these in-game assets, it should be Blizzard, since they have sole ownership of everything in their game world.
What's next, the IRS is going to have a WoW account and send tax letters in game to collect my gold pieces?
Then they'll turn around and sell them for $15 per 100gp!
If there's anything more important than my ego around here, I want it caught and shot immediately.
This could work out for the best. Just think , then the cost of buying the games plus expansion, and monthly fees could be deducted as expenses. Not to mention in the case of WoW, the GP spent in training abilities and getting epic mount so I can run the instances and BGs that get the loot to pay taxes on.
Honestly, though how could this work? I could potentially form my own company to play WoW and sudden the cost of meals while eating and playing, electricity and computer upgrades all business-related. Now, I'm looking at a net loss as a company therefore no taxes.
These games are global, I am not a US citizen and I don't live in the US. Good luck to the US government trying to tax me for playing a game.
Taxation on real income earned through playing a game - fair enough - then it's just normal income. Although the volume of people earning significant amounts of real money from a virtual world in any given country is surely so low that it's not worth considering.
Never ending FUD.
/. to KILL FUD where they can, rather than incite it?
Can I please ask the Slashdot editors to READ THE FRIGGING STORIES before passing this on as a reasonable summary of the article?
Firstly, it's nowhere suggested that this is "inevitable". IRS interest in the subject is "a matter of time" but the taxes are not. In fact, this could be a Pandora's box for tax authorities, because it will open a flood of issues that have heretofore been somewhat ignored such as
a) what right does the government have to interfere (that is, tax) a transaction between two individuals
b) trades of in-kind goods are frequently unvalued. If I trade you a $4 chicken for a $6 goose, it's clear that legally (only), I owe the government taxes on my $2 profit. But in real life, things aren't born with price tags attached; if I trade you a chicken for your goose, who's to say who 'gained value' from the transaction? The insubstantiality of the concept of objective value is problematic, exponentially so with 'virtual' goods.
Secondly, from TFA:
"LaPiana said that there is little question that the transfer of such assets could be taxable, since it is property. However, he did say that the taxes would accrue only if the total value of the estate's assets exceeded the limit set by the state in which the deceased had lived. In most cases, he said, that amount is $2 million, though some states, like New York and New Jersey, have lower limits."
So realistically we're talking not about a tax on virtual assets, as the stupid summary presents, but a tax on the REAL WORLD PROFIT made from the sale of such assets. And I'd presume that IF the IRS is claiming that profit you made is personal income, then you can immediately apply (and get) deductions for the
- cost of the computer
- costs of the internet connection
- cost of the game
- costs of the monthly access fee.
I can't see that even the IRS would see the cost/benefit of chasing 99.999% of gamers who aren't going to actually see a profit from this sort of transaction. Or is the IRS working in China now?
I understand that "OMFG THEY ARE GOING TO TAX MY WARCRAFT ACCOUNT!!!!" is the FUD that everyone seems to like spreading. Isn't it up to tech-literate sites like
-Styopa
Why?
Because then the government has declared it's *mine*, therefore despite any statements in the EULA or elsewhere, the Developers of the Game could not arbitrarily close my account for gold selling. They could not fix bugs in the game that I was exploiting to get more gold faster. They couldn't do anything to prevent my business from operating, or else I'd have a nice little conversion of property suit, or restraint of trade, or even an Anti-Trust suit.
The taxation rate would be consistent, so I could factor it into my pricing and business plan and still remain quite profitable. And it would be completely legal and they could do nothing to stop me.
So, if I were Blizzard, Turbine, or any other game maker attempting to control the Gold Reselling market, I would fight this tooth and nail and claw and frostshock.
If you actually read tax cases and full court decisions, you will understand that all this tax protestor crap is just gibberish caused by taking tiny quotes from old tax decisions, combining them with odd semantic arguments, and trying to weave them together into some incoherent whole that flies in the face of common sense.
Basically, the term "Direct" tax does not mean what you think it means. A "direct" tax is a tax on property, an "indirect" tax is a tax on commerce, consumption or trade. This is backed up by the full text of several Supreme court decisions and The Federalist papers, which may be relied upon to help understand the frame of mind, and/or terminology of, the authors of the constitution. (Some district courts didn't understand this in the text of their decisions, but the Supreme Court decisions override those in any case.)
"Direct" does not refer to how the tax is collected. (From a taxpayer directly vs. paid for by somebody else.) That would be stupid to even mention in the constitution, as the collection method of a tax is rather irrelevant when it comes to whether or not it is legal.
As far as the "The 16th amendment created no new power to tax."... Using this as a reason to say that income taxes are unconsitutional is silly in the extreme. The 16th amendment clearly states that income, from whatever source derived" is taxable. If the 16th amendment created "no new power to tax", and it plainly states that income is taxable, it would imply that the income tax was constitutional before, and after, the 16th amdendment was ratified.
Google for "Tax Protestor FAQ" for full details.
SirWired
Ok - economists and gaming blogs have speculated on the possibility of virtual assets becoming taxable someday for at least a year now. What we have here is another economist (read professional guesser) telling us it's inevitable. There's absolutely no references to movement in Congress on the subject, or refutation to the rebuttal that all MMORPG assets belong at all times to the parent company, therefore no taxable exchange can occur. Making money on ebay is one thing - it's a tangible, defined monetary gain with a clear record of when and how much - and it doesn't matter how you earned the money, you earned money. Trying to claim money is made in an MMORPG at the time a dragon is slain is a myth to stir up contraversy. I challenge any representative of the United States Congess to stand before his peers and make the claim (with video FRAPS evidence as backup) that as the raid leader gives someone a purple shiny sword in a video game, their real world wealth has increased and they need to be taxed.
You can get 15 minutes of fame, but you can go down in history for infamy.
The thing is, in the real world those things are taxed--when they are converted to actual cash. It's called "Capital Gains". The whole point is to take into account the variable nature of value in price fluxuating commodity goods.
If you buy 1,000 shares of stock for one penny each, and those 1,000 shares zip up to 5,000 dollars a piece, you don't owe a dime of tax (unless you receive dividends). If they drop back down to 1 cent each, and you sell, you owe tax based on the amount of money you made when converting the shares back to cash, which, in this case, would be 10.00.
You do NOT owe money based on how much that stock was worth at it's peak, because you didn't sell it at that value, and it would be grossly unfair to tax you based on the 5,000 dollar a share value, when you sold at 1 penny a share...That'd be on the order of a million dollars tax owed on a ten dollar sale.
Since WoW gold, etc, is valued at different values on different servers, and since that value fluxuates on a daily basis, it would seem to be impossible for the IRS to tax "gains" of WoW gold/items that have not been converted to actual currency...At what value would they fix those assets? It's be like taxing your penny stock at the 5,000 dollar mark...You don't have that money, and there is no guarantee that you'll ever have that money, so how can they tax it?
Now, if you sold gold/items/characters, that would be completely taxable, but I wouldn't think it would even fall under capital gains, but rather unreported non-work income, just like any other money gained from where people don't do your tax witholding for you.
Just stupid.
ad logicam Claiming a proposition is false because it was presented as the conclusion of a fallacious argument.
They're called capital gains taxes because you're only taxed on the gains. If you bought 1000 shares at a penny and sold them at a penny.. you have no gain. They cost you $10.00 and you recovered your original $10.00 investment. Your tax liability in this case would be zero.
The only things that are inevitable are virtual birth, virtual death and real taxes.
From the FL dept of revenue:
What is Intangible Personal Property Tax?
Florida's intangible personal property tax is an annual tax based on the current market value, as of January 1, of intangible personal property owned, managed, or controlled by Florida residents or persons doing business in Florida. (empahsis mine)
Now, currently, intangible property is limited to stocks, bonds, etc., but there's no reason that the state couldn't extend that to property in a game (though it's unlikely). Remember, too, that businesses are often taxed on business property, which is valued every year at current market value or at depreciated value, depending on the type.
There are lots of pitfalls in the way things are taxed - mostly to get around people who try and get around the system, or to extract revenue from other/new sources (FL has lots of retirees, retirees have low incomes but high net worths - intangibles is a way to get at that money).
Is it just my observation, or are there way too many stupid people in the world?
Earth & Beyond was shut down.
Do I get to report lost income on my lost starship? It was top of the line and fully upgraded.
How do you determine fair value for obtaining an epic weapon?
Inflation and deflation in online games is horrific. One day I might have a worthless blue diamond. The next, they introduce a new recipe that uses blue diamonds and it is suddenly worth about 25 dollars. A month later, everyone has farmed them so heavily that they are only worth about 25 cents again.
I don't see how they are going to get a handle on these things except at the point of transfer to real dollars.
If second life goes out of favor then that million dollars of virtual real estate could become worthless overnight.
She was like chocolate when she drank... semi-sweet at first and then increasingly bitter.
BTW, I've read that FAQ, and I've done battle with Mr. Evans many times. He is the one citing irrelevant cases. Its absurd. I read these cases for hours, only to find that his cite doesn't even back up what he claims. Its good practice with learning you can'tr trust anyone and you have to read for yourself.
.zip to the file I downloaded)
Download this file: http://ctc.schtuff.com/taxusnot_repository_zip (I had to add
And extract the FriviouslArgumentsRefusted20050314.doc file, and read away.
Slashdot's rate-of-post filter: Preventing you from posting too many great ideas at once.
Which brings me to this question.
Why does the Government feel it needs to tax everything possible? Can the absense of tax, and rule of tax law for a given commodity exist in a free market? Is it so hard for economists, the IRS, and politicians to grasp that just because you can tax something, doesn't necessarily mean you should?
Here is a simple answer to the above: If the total taxes collected from this commodity is greater than the amount of expenditures required by the Government to a) write the tax code b) implement said tax code and c) punish those not in compliance with the tax code, then its not worth taxing it. To go deeper into that, if the Government can't begin to fund other programs from the taxes collected after the expenditures have been extracted, then it is REALLY not worth it.
This sounds like Government sticking its nose into something which it a) will likely not profit from and b) does not fully understand the limited timeframe involved with which said commodity might exist.
Score another point for idiocy by our elected officials!
However, MMORPG items have no enforced scarcity, which makes them about as valuable from an investment point of view as cereal decoder rings, or stock in a company where new stock is issued by simply running the photocopier (as much as possible, and buying more photocopiers from the issued stock...).
For any kind of real economic recognition, unless the IRS and the state department feels it's a good idea to essentially hand a money printing permit to the MMORPG companies, with the associated real-world currency inflation, the virtual worlds economy engines would need to be under SEC and/or central bank control.
How many dupe bugs, run-amok sysadmins, random item rarity changes, and outright company _sales_ of the virtual items would it take before we'd get Sarbanes-Oxley for MMORPG's? New profession coming in the new expansion; Accountant. No players may loot items without an Accountant in the group...
"it's not as though dollars actually represent any stable tangible assets anymore."
A particular dollar in your bank account does, however, represent a physical dollar payable to you. If the bank allowed a teller to multiply your account balance with a billion, that bank would have a problem, as they themselves, unlike the MMORPG vendor, cannot simply print more to give you.
A physical greenback hardly qualifies as a "stable tangible asset." How many Euros will a USD net me tomorrow? How about the day after? In July it was 0.8 USD, but right now it's closer to 0.75. A dollar merely represents a particular value, but as with many other things fiscal, that value is quite fluid.
Yes, yes it is, exactly.
From the IRS page on Narcotic-Related Investigations...
When the Internal Revenue Service astounded Public Enemy Number 1, Alphonse Capone by obtaining a conviction for tax evasion and demanding millions of dollars in back taxes, Capone said, "They can't collect legal taxes from illegal money." But it's really pretty simple: No matter what the source of income -- all income is taxable.Barter exchanges are taxable, so if you trade your +3 ax of orc slaying for a +4 wand of pastry conjuring, that's a taxable exchange based on the value of the items.
But if they are going to enforce this, they'd better be prepared to go the whole route: if a character gets PK'd and the other player loots the corpse of a valuable item, then that is theft. Depending on the value of the item it may well be grand theft. The government had better be prepared to prosecute these crimes and make room in the prisons for the 12 year olds that they are going to be sending up the river for 20+ years.
Of course, if you're going to tax virtual income and prosecute for virtual theft, then you may need to consider the possibility of prosecuting PKers for virtual murder.
Oh man, I think I'd better start law school. I see where the employment opportunities are going to be in 2010.
-- I have monkeys in my pants.
At the moment, the only virtual goods with any intrinsic potentially taxable value are those in Second Life and other worlds which grant actual ownership of objects to players. In these kinds of situations, there may be barter consequences, but only if there is a way to actually determine the $US value of the object. Consequently, it is possible to incur a deductable expense in the creation of such object, and in general it will behave like any other intangible capital asset, including the existence of a basis, if such can be properly documented.
In 'more traditional' games where the EULA says 'we own your character, your stuff, and your little dog too', then the in-game objects are worthless. This has two consequences. First, sale of such an object for real cash results in a taxable event as a source of ordinary income rather than capital income. Second, in-game exchanges are non-events, as everything involved is worthless.
Bear in mind that these are all potential treatments, and that the IRS position is currently of the 'wait and see' variety, since the Second Life style of object ownership is currently an aberration, and Congress is quite visibly trying to make up its mind on the topic.
Which brings me to a point that a lot of /.ers seem to miss, and a lot of American people in general also seem to miss. The IRS is a part of the Treasury, which is a Cabinet-level department of the Executive branch of the US government. the IRS does not write or approve the tax law (though the IRS General Counsel includes tax writers who are called upon by the Congress from time to time to produce language intended to have some stated effect), they admisister and enforce it. The people at the IRS are doing as the law directs, and the horror stories you hear over the next few years should be laid at the feet of Max Baucus rather than Mark Everson. Of course, anyone thinking of breaking Godwin's Law at this point should be ashamed of themselves.
It may not be just, but it is fair, and that is more important.
From the IRS...
Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of goods and services exchanged must be included in the income of both parties.and ...
You own a small apartment building. In return for 6 months rent-free use of an apartment, an artist gives you a work of art she created. You must report as rental income on Schedule E (Form 1040) the fair market value of the artwork, and the artist must report as income on Schedule C or Schedule C-EZ (Form 1040) the fair rental value of the apartment.Be afraid...be very afraid...
Can you imagine somebody handing over their SSN when buying a game?
Those are examples of realizing tangable assets in the real world.
I would think that if I exchange a small fortune of in-game currency for a +7 sword of ogre evisceration that I still haven't realized anything in the real world. I'm merely engaging in my hobby.
All generalizations are false, including this one. Mark Twain
Even more important than the income taxation issues, are the money transfer ones.
When money changes hands, banks and other institutions must report on both sides of the transaction. In game, at present, that doesn't happen. In could transfer in-game assets to someone as payment. In simplistic sense, I could hand "dirty" cash to someone and they could pay me in "game" assets. When I sell those assets, I now have "clean" money. The the cash could then be paid in small quantities to individuals to transfer smaller sets of funds back to the main player as in-game assets.
You could complicate that and hide it behind a few more cutouts, but that's the essential way to do money laundering like this. Of course, it could also be done as a massive number of people getting cash (say, $200 each) to buy in game assets then each transfer those assets to a counterpart in a similar pool of people at the far end, who sell the assets and now have the cash. They in turn buy other assets and repeat the transaction in reverse to a different member of the original pool and you close the circle. The more 'steps' it takes in the process, the harder to track.
You can (and people do) do the same thing in real life but the assets themselves either don't exist (which can be ultimately caught) or else are expensive and cumbersome enough to make the friction expensive. In virtual worlds it can be scripted and kept purposely obscured by a random seeming level of interaction among a large volume of players.
If these economies are going to be getting "real" then the controls on them will have to as well.
The problem with quotes on the internet, is that nobody bothers to check their veracity. -- Abraham Lincoln
What are you talking about? Have you ever filled out tax forms? When you sell stock, you fill in the 1040 Schedule D form with the number and type of shares, the sale price, and the "basis" (which is how much it cost you to buy them). Both these values include the transaction fees, so if you buy $10 of stock and E*TRADE charges $20 to perform the trade, your basis is $30. Then when you stupidly sell the stock for the same $10, and E*TRADE charges another $20 to perform the trade, your sale price is -$10. The difference is -$40. So you report a loss on your 1040 form for capital gains.
Wrong. As the previous poster stated, you have zero tax liability because you didn't realize a gain on the sale. That's how it works in the US. If your accountant has told you otherwise, hire a new accountant. If you're not using an accountant, maybe you should be. The IRS isn't likely to tell you that you payed too much tax.
In some games users can set up stores to sell items. Some people use very deceptive tactics to trick others and bilk money from them. Would this now become a crime, punishable in court? Would you need a business license to set up a store in a virtual realm where your store can end up right next to someone form another country?
I think what you would ultimately see is a drop in the number of casual MMO players like myself, and the constant complaining from the hard core MMO crowd.
If you must!
So I guess the point is that a physical greenback does qualify as a "stable tangible asset" relative to your tax bill, which is of course the point of the discussion.
If you think imaginary property and real property are the same, when does your house become public domain?
Maybe your virtual dependents could collect Social Security.
You obviously didn't graduate from Yale. :-P
If someone is passing you on the right, you are an asshole for driving in the wrong lane.