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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.
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?
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
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
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.
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
The conjugal visit expansion would confuse most online gamers anyways.
Weaselmancer
rediculous.
With idiotic ideas like this around, the IRS would be raking in trillions...
Am I running a "business" -- and can I hire in-game "employees" ?
Yes, but be careful not to hire too many. If you hire more than 14, you will have to provide them with virtual health insurance. And the rates on virtual disability insurance are just crazy. All that hacking and slashing...
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
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.
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?
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.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.
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!