Taxes, Second Life and Warcraft

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

Comments

Only one answer

[Stumbles]

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

BULLSHIT

Re:Only one answer

[UbuntuDupe]

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

Re:Only one answer

[flitty]

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

Re:Only one answer

[drinkypoo]

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

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

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

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

Re:Only one answer

[Anonymous Coward]

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

Way to RTFA.

Re:Only one answer

[Atlantis-Rising]

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

Re:Only one answer

[MadJo]

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

Re:Only one answer

[UbuntuDupe]

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

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

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

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

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

Re:Only one answer

[Anonymous Coward]

Less government involvement???

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

Sheesh!

Re:Only one answer

[jandrese]

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

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

Re:Only one answer

[Surt]

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

Anyway, you get the idea.

Re:Only one answer

[Dachannien]

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

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

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

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

Re:Only one answer

[Mr. Underbridge]

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

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

Re:Only one answer

[flitty]

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

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

Re:Only one answer

[Aladrin]

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

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

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

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

Re:Only one answer

[Kijori]

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

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

Re:Only one answer

[tomhudson]

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

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

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

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

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

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

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

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

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

Re:Only one answer

[tomhudson]

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

doh - maybe because money ISN'T changing hands until you actually "cash out"?

Re:Only one answer

[theckhd]

FTFA:

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

It doesn't make sense to tax someone who plays the game without selling in-game items for "real money," and the author doesn't suggest it. However, once you start selling gold on e-bay or through one of the well-known resellers, that money now counts as income, and you ought to be reporting it on your income taxes to begin with.

The whole issue of "taxing virtual money" or "paying with virtual money" is an invalid argument. This is no different than any other person who makes a profit off of one of their hobbies, and the tax system already has the means to handle it.

Re:Only one answer

[theckhd]

Except that "commercial activity" implies trading virtual content for real-world money. The article (hell, even the summary) goes out of its way to point out that as long as a transaction involving real-world money isn't involved, no tax would be assessed.

Re:Only one answer

[SL Baur]

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

Re:Only one answer

[Anonymous Coward]

You don't need a standard conversion. The profit is taxed. Your cost basis is your montly account(s) costs. Your revenue is what is paid for whatever you sell (gold, items, accounts, etc.) and the profit is the difference. You're not converting or trading money, your buying and selling bits. Only the real world conversions matter.

Re:Only one answer

[WaXHeLL]

If virtual property was taxed when convered back to real money, then you'd also have to account for the expenses incurred in obtaining that virtual property.

Deductions for my World of Warcraft monthly fees?
Deductions for my ventrilo server?
Deductions for the costs incurred in developing a SL object?
etc

I don't think anyone has really taken a look at that issue, but much of it is already covered under existing US tax laws (business expenses).

And if I cash out less than what I originally put in, can I write off the loss?

Re:Only one answer

[Red Flayer]

Thank you for posting that. I, for one, am glad for NJ to keep it's awful reputation -- then all the dimwits from NYC, Staten Island, Pennsyltucky, etc will stay the F out.

That said, please don't tell anyone about the rest of NJ, you know, the parts away from the TP and GSP.

Re:Only one answer

[Maxo-Texas]

And the problems with doing a) and b) is that a primary role of corporations is to externalize their costs.

http://www.thirdworldtraveler.com/Rachels/The_Corp oration.html

So you have two groups of people (citizens and government employees) who sorta, kinda want to tax fairly and one group of people whose entire purpose for existing is to push those costs on to the other two. Who is going to win in this struggle?

Our problem with b) is that if you want a swimming pool and I do not. And I want a recycling program and you do not, we both end up with a swimming pool and a recycling program. Extend that to 300 million individuals and you end up with all sorts of wacky stuff. I think you would get a better result if you fixed the tax rate (which would require a constitutional amendment) and then let everyone scrabble over that fixed amount.

And then we have the problem of words.
If we say we tax activity "A", then people doing that activity find a way to change it just a little and then call it activity "A1". That applies in this case. Likewise, if we had a constitutional amendment limiting taxes, they would define a new word (usage fees, service fees.. who knows) instead of the word "tax" to get around the amendment.

You have people working 8 hour shifts to make a product that they sell for real money to consumers. But because it is phrased as "playing a game", they have managed to get away untaxed.

Likewise the gambling issue in S2 where lindens could be won gambling and then sold for real cash.

And let's turn it around... Say I start mowing lawns for 100,000 platinum in EQ? That's $21 value for a lawn mowing but it's just "EQ Plat", not "real" money. It takes me about 120 hours to earn 100,000 platinum so it's a very good deal for me, removes taxable liability.

The more virtual worlds we have- and the more time people send in them- the bigger this issue becomes.

I don't go to a real movie, out to eat, or to a real ball game- instead I spend 30 hours in a virtual world that week. Provided food, a place to live, and a good computer/network connection I could probably go 10 to 15 years doing almost nothing as far as the real world is concerned.

It's a fascinating issue.

Re:Only one answer

[Anonymous Coward]

Wow, so it's done using government funded resources which they want a tax on. That means the property falls within the government's jurisdiction at some point, correct? They can freeze your assets in WoW and Second Life. So if we continue to apply that standard, then it hits a point where you say "It's property, so the government has to protect personal property rights in MMOs". Which means we now have a situation where a lawyer can sue government agencies that fail to help a guy recover his fucking cloudsong.

Pardon me if this just sounds like a can of worms the politicians just don't understand all the implications of well enough to open it.

Re:Only one answer

[maxume]

Police provide a better environment in which to do business(or in which to work). Education provides better workers(or improves opportunities for work). Unemployment keeps people more able to work. The point is that government services make it easier to provide for yourself and your dependents, and if they don't, in at least some tenuous way, relate back to that they are pointless.

As far as 'income tax is not enough alone', what do you mean? Do you mean that setting income taxes high enough that the government can provide all the services that make sense is not the most efficient way of funding the government, or do you mean that 1+1=? is an impossible equation to solve?

Re:Only one answer

[billcopc]

You're skipping a level of indirection here. First of all, telecom fiber is paid by, ahem, the telecom. The fact that they get preferential gov't treatment is beside the point. Tax the telecoms. Then the power lines are paid for by the power company, see previous point. And then the roads are a public good, supposed to be covered by vehicle registration and licensing dues, public transit fees, and tyre levies. Then the telecoms, power companies and tire vendors pass the costs back to the consumer in their prices. If the government isn't making enough money from 1st-tier taxing, they should either adjust those tax rates and let the difference trickle down to the consumer through natural market forces, or they should cut their spending and jack up efficiency. There's no justifiable reason for these things to be double-taxed, not in a true capitalist economy.

Re:Only one answer

[pinkocommie]

Isn't that a good thing, a honest appraisal of what you're being taxed for? come tax day

1. $2,400 for your share of the Iraq war (guesstimating 50 million tax payers, 1 in 6 people , 120 billion budget sent to the president at the moment)
2. $1,120 for education (56 billion / 50 million)
3. $8,400 for the department of defense (420 billion excluding war spending / 50 million)

If people actually realized what the government spent money on, it would be a little easier to have them put a stop to frivolous spending and costly wars. Not to mention selling a war with a cost of $1,000 tops with cashbacks (oil sales) of most of that and then an annual cost upwards of 2000 dollars would've had the average voter thinking whether it was worth it or not versus sending others kids out to die.
http://www.house.gov/schakowsky/iraqquotes_web.htm
http://www.washingtonpost.com/wp-srv/politics/inte ractives/budget06/budget06Agencies.html

Re:Only one answer

[Anonymous Coward]

"The governments" are not the ones who own the lines that the internet runs on. Initially they may have given the companies who own them (I believe it's mostly AT&T again) subsidies to lay the lines, but my monthly bill comes from AT&T, not the government.

Also, last time I checked I already paid income tax, sales tax, an almost 20/cent a gallon tax for gas (which isn't directly related to the actual COST of the gas). Depending on region you pay taxes to build/upkeep roads or tolls. People who smoke cigarettes can pay over 2 dollars/pack in tax (again depending on location). Next thing on the list is going to be paying a tax for the actual bandwidth you use (lets say 10 cents a gigabyte).

So do I want to be taxed in a game I'm paying a monthly subscription for, on top of the initial 50 dollar cost, using an internet connection that i pay a monthly bill for? No. I do not. Like I already implied, I believe taxing people for making money and then taxing them when they spend their money is double dipping to begin with.

And terrorism is using fear to get the ends you desire. When you say that other countries will invade us if we do not increase taxes, that's using fear to get the ends you desire. And totally out of proportion. If you believe paying taxes on farming gold on world of warcraft will end terrorism will you start paying my subscription? You might be able to write it off =P

Re:Only one answer

[Ryan Amos]

All of this is moot. Maybe not in Second Life but in WoW it is.

All of the real world game world transactions are expressly forbidden by the WoW terms of use. Most of these companies are pretty under the radar as it is, why the hell are they going to pay taxes? I doubt many of them have any presence in the US at all. Why should they pay US taxes?

Re:Only one answer

[m0rph3us0]

Regarding transactions that don't involve legal tender, the Freemans called they want their legal theory back.

Re:Only one answer

[TikiTDO]

As a matter of fact, you are entirely correct. The virtual world really is non-dependent of telecom fiber lays that ISPs and in turn both consumers and providers of the virtual world pay taxes on. The virtual world provider also pays their fair share of the taxes that pay for your subsidized power. Of course let us not ignore that those roads to move the servers take in taxes from each delivery made, and let us not forget the taxes the business pays by virtue of making money from the consumers.

As for your government laying down arms, and rolling out of [Insert Current Terrorist Target Here]. That would surely lead to your country being invaded instantly, as you suggest. Much like so many other countries in the world that only maintain a small self defense force and have no interest in funding an active invading army while taking away huge sums from academia and research. I mean, god help us, don't suggest we try to cure cancer, there are BROWN PEOP... TERRORISTS TO BOMB. And once we're done, oh, look, there's oil here, however did that happen.

Re:Only one answer

[cayenne8]

"It's also the only place to go at 3 AM when you decide it's a good time to get some coffee and disco fries..."

What are "disco fries"?

Re:Only one answer

[UbuntuDupe]

You make a good point about the wastefulness and complexity that attaches to taxation under democracy. But:

a) I think you give citizens and government employees way too much credit. They, too, are self-interested and intend to enrich themselves at the expense of everyone else.

b) I think your characterization of corporations as being *for the purpose* of externalization of costs, is misleading. Yes, it is possible (though rare) that a corporation can impose costs on others that its current assets can't compensate for, and the victim could be stiffed while wealthy silent partners (passive shareholders) are immune. But this happens all the time with poor criminals. Johnny Thug kills someone and doesn't have to pay a dime (because he's too poor to be worth suing) and gets his incarceration paid for by his victims. To the extent that we can't enslave him to pay compensation to his victims, is that too an externalization of costs?

Re:Only one answer

[Atlantis-Rising]

You should be. There's no reason, for example, why you wouldn't pay taxes on garage sale items; the government (IRS, whatever) simply decides to overlook that because it'd take far too much effort to enforce reliably. But believe me, they're entitled to.

Your second point is more valid, and it's a good point indeed. However, if I'm a 747 pilot flying for the Luftwaffe, does that mean I shouldn't be taxed because the Luftwaffe owns the plane?

(terrible analogy, I know, but I trust you get my point.)

Re:Only one answer

[Atlantis-Rising]

An argument that seems to make sense but is logically fallacious. 'money' itself is nothing but a medium of value exchange. 'Money' is indeed changing hands.

Re:Only one answer

[operagost]

Thank you for posting that. I, for one, am glad for NJ to keep it's awful reputation -- then all the dimwits from NYC, Staten Island, Pennsyltucky, etc will stay the F out.

As a person born in New Jersey who escaped to "Pennsyltucky," I can GUARANTEE that I will NOT be returning. You can live in the tiny green part of South Jersey that hasn't been raped by developers for a little while, but you're still under the same oppressive, anti-freedom, pork-barreling, high-taxation, corrupt government that the foul, polluted, crime-ridden, ugly northern part of the state suffers under. Maybe your moment of clarity will come when someday your local government uses "eminent domain" to steal your property and give it to a developer.

Re:Only one answer

[SL Baur]

This isn't exactly what the article author indicates - she believes that if you are dealing in Lindens, then you're essentially engaging in barter with intangible property - but I would argue that Lindens are worthless until there is an interface with a non-virtual good, service, or money, and that's the point at which tax could be assessed. I don't know about 2nd Life, but for WoW, that's exactly what she's talking about. Transactions, drops, etc. kept in-game are not taxable. However, if you sell your stuff for US$ to those guys whisper spamming us every few minutes, that should be taxable (in her opinion). It's difficult to argue against that under present US law.

Re:Only one answer

[billcopc]

The problem with WoW is that Blizzard Entertainment specifically prohibits the sale of any virtual possessions. The gold farmers get away with it to a certain extent because they're in countries where western law is largely ignored, so Blizzard has little pull beyond shutting down accounts known to engage in trading, but for example in China, because more people make use of internet cafes vs personally owned computers, Blizzard sells CD Keys for 30 yuan (less than 3 US dollars). Paying 3 bucks every time a farmer gets banned, that's a joke!

Second Life... well it's a weirder beast given their explicit financial system. This is where things can get hairy because there is genuine income generation in this game, where people set up virtual businesses / services / brothels :P and it is their virtual "job". I've never played SL so I have no idea of the kind of money people make, but I'm sure some enterprising gamers must have the patience and know-how to develop full-time income, since it is supposed to mimic real life to a certain degree. Should that income be taxed at the state or federal level at all ? Should they crack down on virtual prostitution :P and make it a real criminal offense ? The government would probably answer yes to taxes, and no to law enforcement ... anything with a dollar sign overrides common sense, when dealing with large organizations.

My personal take is that those people who make money through gaming, they have to spend it somewhere. If the supplier/provider/consumer chain were properly taxed, it wouldn't matter where the money came from, as its effect would trickle back up the chain like everyone else's money.

Re:Only one answer

[jeremyp]

Yes there is a generally agreed standard conversion rate for WoW gold. Under WoW terms and conditions trading WoW items and gold for real money is prohibited. Thus WoW gold is not worth anything outside the game. The fact that some lusers choose to ignore that fact and buy WoW gold on a sort of black market is totally irrelevant.

You could make a good case for the companies that sell WoW gold to pay the normal taxes of a commercial organisation, however i strongly suspect most of them are outside US jurisdiction.

Re:Only one answer

[Ephemeriis]

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

I guess I'm just curious what they're going to tax, and how...

Isn't just about any kind of income taxed right now? I mean...you get taxed on investments, gifts, winnings... If I sell some World of Warcraft sword on eBay, aren't I supposed to report that income already? And wouldn't I be taxed on that income? ...so, what needs to change?

Or are they planning on taxing in-game income? If I sell that sword in-game for 100 gold, does the government suddenly need a cut of that? If so, do I pay them with gold or with dollars?

Re:Only one answer

[cayenne8]

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

Well, fortunately for for myself and others that disagree with you...this isn't the case. We find your thoughts 'disturbing'..

Many of us do NOT believe in the all powerful Nanny state. We believe that we can do many things, like provide for our own retirement, health concerns more efficiently if we keep more of our own money, and invest and save it towards such things.

And income tax is NOT the only tax out there my friend. The govt (state and fed) get tons of money...by double and triple taxing the money you make already. Sales tax, property tax, employers taxes (SS, medicare, unemployment), death tax....these all already go to fund police, unemployment compensation, and education. And I think you can see that the govt. often does NOT do a very good or efficient job at what it does do...education being the greatest example.

I'm not saying that the govt. doesn't have its place. For common good...we do need it for defense, law enforcement, etc. But, shy of things that really cannot be best done by private citizens...I feel they need to let me keep most of the money I earn, and let ME decide my fate by allowing me to plan, and invest for the future. When I'm watching and managing my OWN money and future, I assure you I'll be much more judicious over my decisions and more efficient in how I do things than an anonymous bureaucrate somewhere in the red tape zone, that is doing his drone job till he can retire on the govt. pension.

Re:Only one answer

[UbuntuDupe]

Isn't that a good thing, a honest appraisal of what you're being taxed for?

Well, yes, but I was referring to an honest appraisal of the necessity of specific government programs to specific economic activities. People typically put up the false dichotomy of "you don't like being taxed at 95%" (the marginal rate in some times and places)? Well gee, I guess you think we should disband the police!" My point was just, that this justification of taxation is flimsy: the tax doesn't need to be that high, and the transaction doesn't require each and every government program that exists. Please folks, just admit that you're using a taxpayer for another purpose, even if it is ultimately justified!

Re:Only one answer

[drinkypoo]

Yes, the virtual world is totally non-dependent on telecom fiber lays supported by our governments, don't use any government subsidized power, and never rely on the roads to move server equipment.

Telecom fiber supported by our governments? Actually, the infrastructure in this country was initially developed primarily with a large wad of tax money, but it was developed by Ma Bell. So I paid for it, but the government doesn't maintain it. They do regulate telecommunications, so they are involved, but not to the degree which you imply.

don't use any government subsidized power

Another case in which government interference makes the market worse. If we were not currently prohibiting breeder reactors for reprocessing of spent fuel, then we would not need to subsidize nuclear power. You and I (assuming you live here) are paying for the idiot decisions of the government. I'm supposed to be happy about this? Or be willing to subsidize it?

and never rely on the roads to move server equipment

For which they already pay taxes when they buy fuel.

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

If they were smart, they would be, because they'd be distributed.

Regardless: If you had read the final sentence of my comment in which I said "The truth of course is that there is simply less government involvement. Thus such transactions should be carried out at a reduced tax rate." then you would not have had to make this foolish comment that through sarcasm attacks a position that I in fact do not hold.

Re:Only one answer

[C0rinthian]

Keep in mind that against EULA != Against the law. All Blizzard can do is cancel the account. There is no legal backing to that.

Re:Only one answer

[Aladrin]

Terrible? I have no idea what you could mean by that analogy. It makes no sense at all.

Try this instead: Microsoft's Q&A department buys a PC. They decide they can't use it after all, and Development needs it instead. Because they are corporate, they can't just move the PC over. They have to account for it on the books, so the expense gets moved to Development's books and off of Q&A's books. Q&A just sold that PC to Development, but Microsoft actually owned it the whole time. This is not taxed.

Blizzard has the same situation. Player A sells item B to player C. Item B was owned by Blizzard the entire time. No taxes.

Re:Only one answer

[drinkypoo]

b) this is silly anyway because we all know that corporations exist to separate the corporate offices from responsibility. There is no other need for them to exist.

Re:Only one answer

[cmacb]

As you and others point out, the following statement from the GP or so is very very wrong:

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

On the other hand I think one of the things that is very broken about out tax system is that it is far too complicated. A cynic would say that this is intentional, so as to hide from us just how much the take is (well, I would say that too, do you know how much a head of lettuce would cost if there were no taxes added on to all goods and services involved in its production?)

Almost all taxation has easily spotted disadvantages so I won't go into inequities I find in property taxes, gas taxes and other "special purpose" taxes that in some cases *do* fit the description in the GP post. But sales taxes or transfer taxes are really sneaky, and in some cases can be almost impossible for the individual to keep track of. More disturbing that the erroneous statem in the GP is this opinion from TFA:

How should transactions within Second Life be taxed? My view is that, from a policy perspective, the right result is to tax commercial activity within virtual worlds but not game play.

How about this instead: If the person or group making a profit in SL are "nice people" then they shouldn't be taxed. If they are "not nice people" then they should be taxed out of existence. We could have a special board, of which I would be the head, to establish who is nice and who is not. Maybe there is a Santa Claus after all!

Two falacies represented by the quotes above are that (1) All taxes go to good use so we should never complain that we are being taxed too much, but rather just try and get out of paying as many of them ourselves as possible (tax avoidance as a way of life) and (2) that the actual mechanics of the tax are not important as long as the right (evil) people are paying it.

Unfortunately, we are all often dependent on those same "evil" people for goods and services and so we are indirectly paying those taxes in the costs of those things.

It rightfully irks the GP that he/she might pay taxes on something that isn't real. Let's say there is a really (by real world standards) low virtual sales tax of one percent. I build a cube, which takes about 3 seconds (I'm slow) and sell it to you for $100 (lets leave the conversions to and from L$ out of it), then you sell it back to be for $99 (the residual cost after the $1 has been taken out) and then I sell it back to you for whatever the residual cost is again. We can of course do this until the value of the object is too low to be representable in the interface. We've now given the government $100 or as close to that as we care to go and kept nothing for ourselves, and at the same time generated several hundred database records for Linden Labs and the Federal government to audit all to hell for errors. Other than the belief that "all taxes go to good use" where is the value in such a system? I could go broke just debugging a script to process such transactions.

There have been a number of efforts to "tax the Internet" and as far as I know they have all been stopped at some point. Yes, If I order from Amazon I'm going to pay a sales tax, as the Internet allows us to do *many* things that are directly analogous to "brick and mortar" business.

If we are going to tax SL and WoW, why not just "tax the Internet" instead? Tax your ISP (oh wait I bet that's already being done on their profits) and the companies that own the buried cables (ditto) and all the vendors that buy and sell real goods, like Amazon (ditto) and ads on Google pages (ditto) and all the monitors and PCs and mice used to access it (ditto).

I just wish more time were spent, on, well, how it is spent: http://www.gpoaccess.gov/usbudget/

Unfortunately they don't give a lot of details, and

Re:Only one answer

[Red Flayer]

I know you're a raving libertarian, and that's fine by me. br>I'm happy with the tradeoff of taxes for government services in NJ. Is the system perfect? No.

Oh, and I'm pretty glad you completely ignore the best parts of the state. I'll keep them to myself, thanks.

Re:Only one answer

[UbuntuDupe]

Well, I'd say the same for "the ban on enslavement of those who can't service debts resulting from their torts", but even so, *should* all silent partners (passive shareholders) be legally responsible for the corporation's torts? Why? Because they contributed money? Because they influenced management? Because you can say the same thing for: banks, bondholders, customers, workers, and suppliers. All of them give things of value to the corporation and, depending on the circumstances, can influence management. Banks sometimes say, "sell off this asset, or we'll call the loan", for example.

Certainly, there are cases where a shareholder is causally responsible for a corporation's torts, but is he *necessarily* so, qua shareholder?

Re:Only one answer

[Anonymous Coward]

Yes, the virtual world is totally non-dependent on gov. , I wonder why technology does not boom in goverment-less school-less places iraq somalia, well i might be wrong after all nigerian scam shows that even in places with no real gov. you can have interesting tech boom, I kind of feel that if i try to use for my personal use the server of these virtual words , sudenly these totally non-dependant worlds will find things like"private property" and law enforcement, let me know if i am wrong it could be very interesting.

Re:Only one answer

[drinkypoo]

It's not about the shareholders, at least to me (although they certainly share in some of the blame, I'm not sure you can reasonable assign them responsibility) but the corporate officers. They only seem to get in trouble when they piss off the IRS. Makes you wonder what would have happened if Al Capone had found a way to pay taxes.

Re:Only one answer

[klx]

Fries with brown gravy. And perhaps cheese. Mostly gravy, though, I think.

Re:Only one answer

[Atlantis-Rising]

Yes, that's true- but that's not what's happening in Blizard's case. In Blizard's case, arguably, value is being acrued. (realize I'm not a tax lawyer here.)

People are putting in effort, for some material gain, as transient as that gain is; and the medium of exchange they're using, rather than being US Treasury-owned dollar bills, is Blizzard-owned faux-gold coins. The fact that Blizard acts as the mediator of the account is irrelevant.

Re:Only one answer

[Anonymous Coward]

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

This is Nonsense(tm). Taxes are levied on income for many purposes and for many reasons, only one of which is a recognition that commercial activities depend on the state for their efficacy.

Re:Only one answer

[likerice]

Parent said: "[T]he tax system already has a means to deal with it."

Exactly.

"Gross income" is taxable, as provided for by Section 62 of the Federal Tax Code (http://www.fourmilab.ch/ustax/www/t26-A-1-B-I-63. html). Section 61 of the Code (http://www.fourmilab.ch/ustax/www/t26-A-1-B-I-61. html) defines "gross income" as "all income from whatever source derived," unless that source is specifically excluded.

The power to tax is expansive. Thus, from the federal government's perspective, the question is not whether "virtual income" CAN or even SHOULD be taxed, but rather why virtual income should be excluded from taxation.

Re:Only one answer

[Kijori]

Many of us do NOT believe in the all powerful Nanny state. We believe that we can do many things, like provide for our own retirement, health concerns more efficiently if we keep more of our own money, and invest and save it towards such things.

This works rather nicely if you assume everyone earns enough money to provide for their own retirement and healthcare; this simply isn't true. Taking a look at America, the self-styled champion of this Conservative ideology, 10.5 percent of elderly people are living below the poverty line - and this percentage tends to be made up of minorites; 8% of those over 65 are black, but 24% of the elderly poor are. Right now in America, working for your entire life - up to 65 - at 45% of the average wage will still put you below the poverty line after you retire; this hardly seems fair, should the Government really not intervene?

It works even better if you assume that privatisation is more efficient; this isn't true either. Take healthcare, for example; if private companies are "more efficient" than government schemes, why is it that the USA spends more on healthcare per capita than any other developed country (OECD, 1998) without, according to the NBER, an improvement in survival or recovery rates? Surely this is an indication that a centralised system of healthcare is less wasteful than one in which everyone pays for the cover they want - if they can afford it.

I'm not saying that the govt. doesn't have its place. For common good...we do need it for defense, law enforcement, etc. But, shy of things that really cannot be best done by private citizens...I feel they need to let me keep most of the money I earn, and let ME decide my fate by allowing me to plan, and invest for the future.

Why draw the line there? Surely if you could be allowed to choose the level of law enforcement you needed, and pay for it, you could do a better job than the Government? After all, the problems in this area are similiar to those in healthcare: those who need it most are often poor and those who need it often don't anticipate the need. And as America has shown us, a profit driven atmosphere will lead only to improvements in efficiency, not in sacrificing peoples needs for profit. I'm sure there's a justification for costs to go up by three times the increase in wages, while simultaneously hospitals across the country shrink the profit-haemorrhaging Emergency Department that doesn't involve the word "greed".

Re:Only one answer

[Maxo-Texas]

a) Completely agree. That's what I was saying when I was talking about your public pool and my recycling program. Without a fixed hard limit on taxes, we end up with both (and pay high taxes to have both).

But I guess I was saying with regard to fighting the corporations- citizens are really single issue part time fighters while the corporations have lots of people dedicated to fighting full time for them (and willing to fight dirty with bribes, free trips, etc.)

b) I was more speaking about the ongoing costs of doing their day to day business. We pay for roads they use to transport goods on. We pay for police that protect their property. We pay for a lot of things that the corporations have managed to push off as "public" responsibilities while they get the ability to not pay taxes for 5 to 10 years. Movies such as "The Corporation" and similar books make the point that externalizing their costs is one of the primary efforts of a corporation. The participants are legally bound to try to maximize profits and reduce costs.
It's a good point about Johnny Thug tho- same thing with "Pedro Illegal" who we pay schooling and medical care for. I think the middle class is getting to the point of breaking on these issues tho. I foresee higher taxes for the wealthy soon (next 8 years).

Re:Only one answer

[Maxo-Texas]

No- but they do need to "kill" corporations that are criminal. I think we have only killed one corporation. The argument is always that too many jobs will be lost. If you did disincorporate a bad corporation, the investors would lose and the executives of that corporation would probably have a harder time getting employment at other companies. These are the actions that matter. Fines are just a cost of doing business. Arresting a couple executives likewise doesn't really affect the beast that is the corporation.

Re:Only one answer

[ajs]

The whole issue of "taxing virtual money" or "paying with virtual money" is an invalid argument. This is no different than any other person who makes a profit off of one of their hobbies, and the tax system already has the means to handle it. Yeah, I think she's making the point that Second Life is a special case, and that other games (she uses WoW as an example) don't have a economic base on which to establish in-game taxation. She uses the example of getting an item in-game as a "drop", and it's an apt one.

Overall, when you sell a character or gold, that's real-world, countable profit. It should be taxed like any other profit.

Second Life is a different animal, and I'm not at all sure what the right answer is, there.

Re:Only one answer

[jandrese]

The only problem is that the IRS operates in the real world. You can't pay your taxes with WoW Gold.

Re:Only one answer

[lordmatthias215]

wait a second. if i buy something off of amazon.com, chances are I'm not going to get taxed on it because it's across state lines, and sales tax isn't applicable. why should there be a sales tax on WoW? Furthermore, any commercial venture in WoW is against their EULA anyway, so it makes little sense to tax an illegal venture. At least in SecondLife, you have a semi-real market value for Linden Dollars. Even then, would the tax be paid in Linden Dollars? Is the government really willing to set up a section of the IRS to collect tax in fake (non defacto) money for what will often be no more than data swapping? How do you tax something that never leaves the company's server? at that pont you're basically taxing my right to right-click a graphical representation of a data object and subtract a number from an arbitrary value, while retaining no lasting, physical record of that occurance. How is that a sale?

Re:Only one answer

[Anonymous Coward]

What is sad is that the information is out there, and has, to some extent, been reported on. Granted most MAJOR news outlets frown on publicly criticizing government policies, but the information is out there regardless.

The problem that I find, is that most people just don't care. MOST, being somewhere on the order of >50% of the voting populous. Be it apathy, defeatist, or whatever attitude towards government involvement you view it as, getting your congress critter to ACTUALLY consider an alternative position to their party affiliation might be consider treason by some. And therein lies the problem. When your elected official no longer listens to the nation at large, and must maintain sides to tow the party line, else next months project renewal appropriation might get tanked, where has the concept of representative government gone?

Going back to the topic at hand, doesn't a taxation in any form in a virtual environment give reason that OTHER behavior in the virtual could be subject to LAW? What reason do we have to believe that criminal and civil law will be witheld from the virtual environment, once virtual goods/sales are taxed? Would it be possible to argue that the NYSE, or NASDAQ is also a virtual environment, one that already gets taxed? Either way, I don't see a need for more taxation, as the government can't properly monitor its currently allocated funds. In THIS day and age, EVERY CENT of the FEDERAL BUDGET SHOULD BE ACCOUNTED FOR! The fact that they CAN'T account for all of it tells me that they don't want to, or don't care to. Such laziness shouldn't be rewarded for some, and burdened for others.

Re:Only one answer

[johndmann]

The problem is not that it is an untaxed medium. Blizzard pays taxes for their network connections, electricity consumption, employees, and so on. I pay taxes on the monthly fee I pay to Blizzard...

Re:Only one answer

[jimbojw]

> Where transactions are purely virtual - i.e., the transaction does not touch real money - the transaction has zero value in the real world, and the taxes should also be zero.

Unfortunately there are transactions that do not touch real money but have real value. Consider this comment. Slashdot (et al) did not pay me for it, yet its mere presence, though singly insignificant, contributes to the aggregate sum of all comments - which is a large component of the value of Slashdot.

Because of its value to the community, which is derived from the very community it serves, Slashdot has the option of peddling space on their site to advertisers, which in turn becomes real revenue.

By no means am I suggesting that the government should tax the act of commenting on a website - I'm merely challenging the assertion that only those things that "touch" real money have real value.

Re:Only one answer

[LouisZepher]

If one added cheese, specifically cheese curds to disco fries, one would have poutine.

Re:Only one answer

[Endo13]

Except you're just confusing the issue by using "virtual income" when what you really mean is just plain old "income" generated from virtual goods or services rendered. Virtual income is an income in-game that has not been converted to real-world currency.

Taxing virtual income is pure insanity; taxing real income generated from virtual goods or services rendered only makes sense.

Re:Only one answer

[Kierthos]

See, I disagree.

If you're selling gold or a power-leveling service, or whatever, in a MMORPG, and you're getting real money for it, it should be taxable income. If you're exchanging in-game items or gold for other in-game items, then it shouldn't be taxable. But there are quite a number of sites out there that offer gold in WoW or DAOC or EQ2 or whatever, and, quite frankly, they should be taxed on any income. And their employees should be filling out tax returns for the gold-selling company they work for.

Re:Only one answer

[trevize42]

Actually.... If they tax in game stuff it could be a great tax benefit. Just form a home business for each game you play. Be sure to pay yourself for every hour played. The only profit you make is from the sale of virtual goods sold. Imagine the huge lose your company will have each year and all the reimbursed expenses! All the pizza deliveries could be expensed. Even going to Fan Faire could be a tax write off. Imagine a new super gaming PC as a business expense! The tax benefit on your return vs being taxed a few bucks could well be worth it!

Re:Only one answer

[Alexandra Erenhart]

I agree with you. Right now a government can tax Blizzard for carrying out an economic activity (such as creating games and such). But there's no government inside the game. I'm a WoW player. I play a "tax" of some sorts for economic activity through the auction house. And that's it. If one day, the players form a government inside a realm, and they claim taxes, I wouldn't like it but I'd agree with it because then it makes sense.

And believe me, if that thing of taxing MMORPG money ever happens, then we'll stop trading with it and find another way.

Re:Only one answer

[MeanderingMind]

That's an interesting point.

WoW players are literally paying Blizzard to work for them. At $15 a month, they are only working to increase the value of Blizzard's virtual property.

I find that way of looking at it intriguing.

Re:Only one answer

[steveo777]

I'd say that, legally, the stuff in WoW has no value because Blizzard doesn't allow for the sale of the goods for actual cash. Who knows, maybe the government could partition the value of PC equipment and the like by auditing what they have every month and splitting it up by subscription fees vs. time played, yadda yadda..., but other than that there is no real way to track it. And it would cost more than the collected taxes.

I see the idea of taxing WoW and other MMORPG (save for Second Life, which allows sales of virtual goods for real cash) transactions as absurd as taxing people (kids or adults) who trade sports collector cards, or some CCGs cards.

Re:Only one answer

[TheSpot84]

Why does everyone insist on drawing a distinction between money supplied by the government and money supplied by the people. They are the same. The government, in it's current condition is supposed to be the people.

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

The fact that MMO servers rely on subsidized power and roads and protection is a fact, and money comes from the government, and thus from the people.

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

Certainly the IRS won't except Gold of Linden Dollars, but do you think that American Dollars actually have REAL value? All investing is a zero-sum game, no wealth is created from trading, it simply mutually improves the position of the parties involved. The dollar has value because we think it does. If everyone played WoW and all the servers had the same exchange rate to the dollar, WoW gold could reach the same perceived value as any other currency. It is not BS that the IRS tax commercial activities in the online realm. If I own a store and I sell WoW trading cards....should I not be taxed because the cards have no money? The fact is people are receiving American dollars for their sweat equity in the online world, which is no different from any other entrepreneurial activity.

Re:Only one answer

[drinkypoo]

I'd say that, legally, the stuff in WoW has no value because Blizzard doesn't allow for the sale of the goods for actual cash.

Are you a lawyer?

Al Capone probably thought the same thing.

Re:Only one answer

[newt0311]

US census, GAO, and The president's budget reports are excellent means of checking how well (or not well) the US government is spending money. Especially US census. They have data on the budget of every single agency and department in the US government.

Re:Only one answer

[Mr. Underbridge]

Except that "commercial activity" implies trading virtual content for real-world money. The article (hell, even the summary) goes out of its way to point out that as long as a transaction involving real-world money isn't involved, no tax would be assessed.

Remind me to link to a definition of "facetious" for you next time.

Re:Only one answer

[Anonymous Coward]

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

Re:Only one answer

[tomhudson]

The fact that MMO servers rely on subsidized power and roads and protection is a fact, and money comes from the government, and thus from the people.

What is this "subsidized power" you speak of? Most of us aren't drawing from a pwer grid receiving subsidies - in fact, they (the utilities) are also tax payers, both directly (on their profits) and indirectly (on their purchases, the employers' portion of payroll and other taxes, etc).

Subsidized power? Not unless you're on wind or solar.

Re:Only one answer

[MadJo]

Besides that whole argument...
How can you distinguish between an American player and for instance a Dutch player? Can you see that difference in the game? No... so how can the tax-office do that same distinguish?

You are absolutely right, though, once you convert it to real money it's real income, and indeed should be reported as such. :)
Good luck, getting that through to the thick heads at the governments.

Re:Only one answer

[cayenne8]

hey...no one said the world was 'fair'.

There always have been, and always will be..the haves and the have nots. I don't see it as my function to be forced to pay out of my hard efforts and earned $$ to support someone else that is too stupid to see the need for a good education, to plan for the future rather than buy stupid jewelry, cars, etc that they really can't afford.

What incentive is there in it for ME to work hard to succeed (measured solely in $$'s earned for my expenditure), if I basically have to give it back to the country to support those who earn less, especially due to above mentioned stupidity?

Don't get me wrong...I like to help people, especially those who are infirmed, or elderly, but, I want to do that of my own free will....I am not morally obligated to be my brother's keeper, and I don't want the govt. to basically shanghai my money from me to redistribute it to others.

Life is tough...and it is not fair. Some just don't make it, and while sad...that is the truth. We don't need to lower everyone's standard of living because some people just "can't make it".

Re:Only one answer

[KDR_11k]

If they have any US presence they have to pay. Just because the source of income is illegal doesn't mean it's not taxable.

Re:Only one answer

[hedwards]

Exactly, how would the IRS even know how much to tax gold versus any number of other weird game currencies like meat. It is a fairly simple thing to calculate how much money one is making by selling in game items for real world cash, but trying to track transactions where a programming glitch can make trillionaires of the entire player base in a mere moments is just plain silly.

The taxes have already been paid to cover the infrastructure. The fee to connect to the internet should really be sufficient to cover the infrastructure required.

Re:Only one answer

[Anonymous Coward]

Provided food, a place to live, and a good computer/network connection I could probably go 10 to 15 years doing almost nothing as far as the real world is concerned.

Was that intended to be ironic? Because it is!

Re:Only one answer

[Kijori]

OK, so life isn't fair. But that doesn't mean that we can't try to make it better. It's a fallacy to think that the only reasons that someone won't have put aside money for retirement or healthcare are stupidity or poor planning; recent research has shown the US to have lower social mobility than a lot of developed countries - should we really punish people for being born into a poor family? And as I pointed out before, people from minorities are massively over-represented by those under the poverty line - are they just stupider?

What incentive is there in it for ME to work hard to succeed (measured solely in $$'s earned for my expenditure), if I basically have to give it back to the country to support those who earn less, especially due to above mentioned stupidity?

If you really succeed - whether by working hard or by being born into money and power - you will be in the top tax bracket. You will pay 35% tax on an income of at least $336,551, leaving you $218,758 per year to live on. You've taken a hit, but you're still not going to be groping behind the sofa for food money - and by European standards this is very low taxation. On the other hand, if you make $11,340 a year, with 2 dependant children, you will receive $4,536 a year in assistance through the EITC scheme. This is quite possibly the difference between eating and not eating. (again, by European standards, this seems very low; even in the UK, which has a comparatively conservative policy regarding benefits, the same family would receive $8,200.) Now take into account John Rawles' veil of ignorance; imagine you haven't yet been born and have no idea where in society you will end up. You have (rounding to the nearest integer) a 22% chance of earning less than $12,500 and a 43% chance of earning less than $25,000. Your chance of earning more than $50,000 is 29%. Things look even worse if we take into account other possibilities - what if you have an accident, or are unemployed? Nationally, you have a 4.8% chance of being unemployed, roughly the same as your chance of earning over $100,000. If you were making your decision based on these chances, rather than in the knowledge that you aren't in a position to need Government assistance to stay alive, would you still think that people shouldn't have to lower their living standards to put food on someone elses plate - despite the fact that otherwise, that plate might be empty?

Re:Only one answer

[Bastard of Subhumani]

Furthermore, any commercial venture in WoW is against their EULA anyway

Breaking an EULA is illegal? It might give them the right to plonk your account, but I doubt you can be fined, let alone jailed, for it.

so it makes little sense to tax an illegal venture.

Tell that to Al Capone.

Re:Only one answer

[e2d2]

Although I favor small government and less involvement I'd like to play the devil's advocate here.

The entire system of monetary exchange in the US depends on the US free market, which is guaranteed (as much as it can be) by the US administration, it's real world resources such as gold and platinum, and the strong arm of control via police/military. One could argue that without this system your virtual trade would be impossible. Now if you base the ENTIRE transaction on virtual goods, such as linden dollars, then I can see why it would have no say whatsoever.

What it comes down to, as uncivilized as it sounds, is that might equals right in this world. You don't pay the "King's" taxes in any country that demands it and you will find yourself in jail or worse. Not right, just reality.

Re:Only one answer

[Acer500]

I don't see it as my function to be forced to pay out of my hard efforts and earned $$ to support someone else that is too stupid to see the need for a good education, to plan for the future rather than buy stupid jewelry, cars, etc that they really can't afford.

Life is tough...and it is not fair. The second sentence is what justifies somewhat the need for a social safety net: you might try hard and not succed.

Also, if there is no safety net, you're incentivating people to "play it safe" and not take risks which might be good for society as a whole - I remember an article on MIT Technology Review I think it was, that said that the US encourages innovation because there is less of a stigma attached to bankruptcy than in, say, Europe.

I agree with the sentiment on the first part, though.

Re:Only one answer

[cayenne8]

"...should we really punish people for being born into a poor family? And as I pointed out before, people from minorities are massively over-represented by those under the poverty line - are they just stupider?"

Not stupid...that would imply being born with less potential than others, and I'd never claim that.

The problem is, in so many of these minority's culture, is the often heavily re-enforced culture promoting failure. Who are the heroes to them? Is is the minority Doctors or lawyers, businessmen, politicians?

NO..it is the rapper, the gangster, or the pro-sports player. And out of those 3 which is the more realistically attainable?

In these minority populations that make up so many of the poor...is the family and family responsibilities valued? Are the merits of an good education, that will allow you to escape poverty and better yourself prized and worth fighting for?

Sadly...no.

And the trouble is...no amount of money is going to change the social culture of these groups. They have to address it on their own, instead of expecting a handout. I think the welfare society that we've run so far, and not only caused, but, promoted this type of lifestyle. This is something for these communities to address, and not something I need to fund and perpetuate.

Not all minorities HAVE these problems. Many of them come to the US from without, and start with less than other minorities already here, yet they work hard, value education, and excel.

No...some people are going to fail, and it is their own fault. Not mine...and not my place to fund them.

Live is tough, but, others coming from way down in the poverty scale, have seen that hard work and education are important, and have risen in society. It can be done...trouble is, THOSE that have done that, are often looked down upon by their fellow minority members, and ridiculed for not 'acting right'...or acting like the 'majority' race. Sad but true....and taking my $ from me won't fix that.

Re:Only one answer

[cayenne8]

"The second sentence is what justifies somewhat the need for a social safety net: you might try hard and not succed."

I don't actually have a problem with the 'safety net' thing.

BUT, it should ONLY be a temporary thing....time limited. Unfortunately, the safety net has become a way of life for many on the lower echelons of society...trust me, I've seen it at some of its worst levels living in New Orleans. Generations of people where the safety net is a way of life, and no intentions of finding work and seeking education to better themselves....just welfare and crime.

I don't mind helping someone help themselves....but, we have to be considerate enough of them, to also cut it off....and make them go work.

Re:Only one answer

[Anonymous Coward]

I hope you end up crippled in a car crash. Asshole.

Re:Only one answer

[Maxo-Texas]

Actually, you are technically supposed to report those sales to your neighbor. The government just has considered it not worth the effort to track (tho they will get you once you hit about $6 grand a year of "sales to neighbors"- usually by noticing a ton of checks passing through your account).

Only select business to business transactions have tax exceptions on the logic that they are selling a product that will be immediately resold to the end customer. However, in VAT countries, they tax many products at every level.

While there is a fiction that you don't own the virtual property- it's really akin to ownership and leasing. If you lease vehicles, you frequently must pay taxes on them even tho you don't "own" them.

Re:Only one answer

[Bastard of Subhumani]

I don't see that as a problem at all - but then I did read the post you're replying to.

Re:Only one answer

[Fulcrum of Evil]

Makes you wonder what would have happened if Al Capone had found a way to pay taxes.

He'd be a Rockefeller?

Re:Only one answer

[lordmatthias215]

Hmm nice way to mince words. It's illegal in that if they catch you doing it, both parties lose their accounts, and the transaction isn't completed. How can you tax an undone transaction? And I'm pretty sure Al Capone was charged with tax evasion because he had mysterious amounts of unreported physical income, which just happened to be the result of his other crimes. The only actual changing of money that goes on in WoW (without breaking EULA)is you paying for your disc and your monthly fees (both of which I'm sure are taxed). None of the money in my character's account is technically "mine" as Blizzard (and Linden in SL's case) retain all rights to the actual data. They just "let me play with it" as long as I send them real money every month.

Re:Only one answer

[Mo Bedda]

Subsidized power? Not unless you're on wind or solar.

If you are in the U.S., it is highly likely that all of your power is subsidized on some form or another. For example, in the most recent energy package passed, the subsidies added for nuclear power and the subsidies added for oil and gas drilling were both greater than either for renewable electricity production or for alternative motor vehicle fuels. And this is nothing new, the Oil industry has received roughly half ($302 billion) of Federal energy incentives since 1950.

Given how subsidies are applied, it may be more reasonable to say that the profits of various sectors of the energy industry are subsidized, rather than saying that consumers in the U.S. benefit from subsidized energy. But wind and solar power are in no way unique in receiving government subsidies.

Re:Only one answer

[drsquare]

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

What on earth makes you think that? I've never heard that before, I don't think it's written in any laws.

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

So real world transactions carried out entirely on private premises with little government involvment should carry a lower tax rate? I wish to subscribe to your newsletter.

Re:Only one answer

[drinkypoo]

So real world transactions carried out entirely on private premises with little government involvment should carry a lower tax rate? I wish to subscribe to your newsletter.

Those transactions take place within the United States (in our example) and are thus protected by its full structure of law and the military. They are therefore reasonably taxed on that basis, if no other.

Of course, if there is legal tender involved, then the government is inherently involved since the money is a creation of the government.

I'm not arguing that there should be no taxation on virtual activities, and the point at which the virtual meets the real (in the form of conversion into taxable goods, or legal tender) it is reasonable to engage in taxation (IMO.) But until the government opens a branch of the armed farces inside World of Warcraft, they're simply not providing any protection there; the infrastructure is paid for by private concerns and was bankrolled by the taxpayer already... I simply don't think that it's reasonable to tax any income entirely generated through virtual activities and with far less protection by the law at the same rate.

I am of course well aware that the IRS does not agree.

Re:Only one answer

[kimgkimg]

Yes, but they'd still make you file a return to show that you didn't have to file a return.

Re:Only one answer

[budgenator]

I'm not sure what this has to do with the price of tea in China, but here goes, everything you mentioned is either taxed or not taxed without regard as to whether the bits connect to WoW, 2nd life, sleazey-porn.com, BrotherJim-bibleThumper.org or OMGponies.com. If the IRS was able to legaly tax imaginary money, I'd be totally screwed because the wife keeps dreaming about winning the lottery. Seriously the guy is a law professor, when he says "commercial activity" he talking about somebody preforming real-world labor, i.e. playing a game and exchanging the fruits of that labor for real-world "valuable consideration". Whether your getting paid for digging ditches or playing WoW, the IRS wants you to pay your fair share as determined by congress.

Re:Only one answer

[forand]

You are just flat wrong: "money is taxed at every step where it changes hands" has not always been the case and it certainly not the case now. There is no sales tax in many states and no income tax in some countries. Income taxes were only instituted in the US to pay for WWI. Taxation in general didn't exist in some cultures, at least not as we know it. So basically it has never and is still not true that money is taxed at every step where it changes hands.

Re:Only one answer

[um... Lucas]

There's probably some good arguments here, but not this one...

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

You're saying that me buying business cards (as an example) depends on services that the government provides? And you're not acknowledging that the government PROVIDED you with the internet? Not Al Gore, but the Defense Department, among others....

That comparison being said, there's not pretext in the tax codes that i'm aware of that says that the government is entitled to tax items specifically because they provide a service in tandem with it... otherwise we'd have all sorts of different tax rates on different items... Want corn? That'll be a 50% tax due to government subsidies... Want a steel knife? That'll be a negative amount, due to tarriffs already received.

Re:Only one answer

[Creepy]

but you can sell your WoW gold for real world currency, as many people do on eBay and other sites.

We don't need a new or special tax for this, however, just a modification of Use Tax laws to include services, which some states already have done. I mean, who cares if you buy WoW gold on e-Bay or a boat - in both cases you're spending real money and getting something back. Not that most people are going to pay Use Tax - I'm probably one of the few that has - I bought a little over $4000 worth of untaxed computer parts online one year to build PCs for family and friends. I could have saved about $350 by not reporting it, and probably would have gotten away with it. Heck, my brother does thousands of dollars of eBay transactions and never reports any of them.

Re:Only one answer

[tomz16]

You are happy? What government services? Are you high or have you really never been outside of New Jersey?

I lived there for over 20 years in every part of North Jersey from Newark (body bag included with rent) to Madison (small town... two Jaguar dealerships... you figure out what kind of demographic lives there), and many places in between. I am convinced that the entire state is nothing but one huge cesspool of mismanagement and corruption. I have yet to see a single government-run project (state or city/township) in NJ that hasn't been completely botched in every respect possible and as crooked as a bucket of snakes.

I am EAGER to hear all about the wonderful specific government services are you referring to!

Re:Only one answer

[harlows_monkeys]

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

What ever gave you that idea?

Re:Only one answer

[pwizard2]

Why close the loopholes when you could probably use some of them yourself for your own needs?

Re:Only one answer

[tomhudson]

Here in Quebec our hydro power isn't subsidized - quite the contrary - it pays a profit to the government every year. And we STILL get 7 cent/kwh electricity.

Its because we spent 16 billion on dams several decades ago.

Re:Only one answer

[BgJonson79]

So because that poster has something that other people don't have, because they worked hard for it, they should be punished?

Re:Only one answer

[blitziod]

I am ok paying taxes on the gold I make on WOW. As long as the gold I make on WOW is an acceptable form of payment! I do not play 2nd life, but feel much the same way.

REally folks this is TOO much. At least in the case of WOW, you do not OWN your own character Blizzard does. GET REAL!

Re:Only one answer

[UncleFluffy]

This works rather nicely if you assume everyone earns enough money to provide for their own retirement and healthcare; this simply isn't true. Taking a look at America, the self-styled champion of this Conservative ideology, 10.5 percent of elderly people are living below the poverty line

I would suggest that if the majority of that 10.5 percent had put 50% of everything that they had spent on non-essential items from the age of 18 up 'til their retirement into a retirement account they would not be living below the poverty line after retirement. The minority that would be in poverty no matter how hard they tried to save fully deserve the assistance of the rest of society, those that made a choice should - within certain bounds, I'm not saying that people should be left to starve - live with that choice. See, for example, Moral hazard.

It works even better if you assume that privatisation is more efficient; this isn't true either. Take healthcare, for example; if private companies are "more efficient" than government schemes, why is it that the USA spends more on healthcare per capita than any other developed country (OECD, 1998) without, according to the NBER, an improvement in survival or recovery rates?

Here, I agree entirely with you. The healthcare system in the US is ridiculous and inefficient and fails to provide the benefits that it claims for itself.

Re:Only one answer

[Anonymous Coward]

"I don't go to a real movie, out to eat, or to a real ball game- instead I spend 30 hours in a virtual world that week. Provided food, a place to live, and a good computer/network connection I could probably go 10 to 15 years doing almost nothing as far as the real world is concerned." (Emphasis mine)

If that's true, I pitty you.

Re:Only one answer

[omeomi]

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

I imagine they would only be taxed when and if you sell your virtual money for real money, which is certainly possible to do in Second Life.

Re:Only one answer

[Bastard of Subhumani]

Hmm nice way to mince words

Huh? I don't think I do that. But then I do know what the phrase means.

It's illegal in that if they catch you doing it, both parties lose their accounts

Ah. So it's illegal in the "not in fact illegal" sense of the word.

Al Capone was charged with tax evasion because he had mysterious amounts of unreported physical income, which just happened to be the result of his other crimes.

You previously said it didn't make sense to tax illegal income. By that logic, no tax would be due - so there'd be nothing to evade.

Re:Only one answer

[drsquare]

No offence but I think you're a loon.

Re:Only one answer

[dwpro]

should we really punish people for being born into a poor family

punish? by not giving them handouts? Where did this entitlement come from?

And as I pointed out before, people from minorities are massively over-represented by those under the poverty line - are they just stupider?

They are probably not stupider, but perhaps more likely to make poor life decisions based on cultural norms. I have no idea why you brought this up. Certainly you don't think that just because minorities are involved that there is some sort of racist/sexist causation. If so, lets see the data on why.

Now take into account John Rawles' veil of ignorance; imagine you haven't yet been born and have no idea where in society you will end up.

I could do this, but then I would ignoring the fact that I have a measure of control over these things and moreover, supporting a mentality that not only condones but rewards laziness/stupidity. I'm no Ayn Rand, but this definitely does not sit well with me.

If you were making your decision based on these chances

But I'm not, and neither is anyone else. And before you condescend to tell me I've never been in some of these people's shoes, let me remind you that you've not been in mine.

Re:Only one answer

[T.E.D.]

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

Because if you have people continually generating money (via questing, looting mobs, etc.) and don't have some way of removing money from the system, you get runaway inflation.

Re:Only one answer

[Kijori]

should we really punish people for being born into a poor family

punish? by not giving them handouts? Where did this entitlement come from?

Society punishes those in poor families. Tending to come from a poorer neighbourhood means they are likely to go to a worse school. They have worse healthcare, less materials to learn from. They are less likely to succeed because of where they were born, before they were even able to make one choice for themselves. "Handouts" - which seems an unreasonably emotive word to me, since you're not giving them money, just taking less in tax - seek to equalize this situation. America is meant to be the land of opportunity, but as I've mentioned in my previous comments, the low social mobility and low social floor combine to make it the land of unbounded opportunity to those born into money or power.

They are probably not stupider, but perhaps more likely to make poor life decisions based on cultural norms. I have no idea why you brought this up. Certainly you don't think that just because minorities are involved that there is some sort of racist/sexist causation. If so, lets see the data on why.

I brought this up in response to Cayene8's statement that he should not have to pay to support someone too stupid to plan for the future. I wanted to know whether he maintains that the fact that minorities are overly represented by the poor is just because they lack the intelligence to plan ahead.

I could do this, but then I would ignoring the fact that I have a measure of control over these things and moreover, supporting a mentality that not only condones but rewards laziness/stupidity. I'm no Ayn Rand, but this definitely does not sit well with me.

Looking at the matter safe in the knowledge that you will never need Government handouts makes it very easy to call them frivolous. In the same way, knowing they were white made it very easy for 16th-Century Europeans to explain how Black people lacked the capability to be anything but slaves. A report by The Economist showed the American "meritocracy" to be failing, with 40% of those from low-income families growing up to live in a low-income family, while 46% of those from high income families stayed in that bracket. The truth is that success is not just a matter of working hard and being clever - if your parents are illiterate or don't believe in education, if they need you to work to earn money, if your local school is failing... all these things will shape the success you end up with. The idea of the veil of ignorance isn't to deprive you of useful knowledge, it's to deprive you of knowledge that could bias your decision. As I asked in my previous post, imagine that instead of knowing where you are now you were about to be born. You have a 43% chance of earning less than $25,000, a 22% chance of earning less than $12,500. Would you still say that the Government should wash its hands of those 'idiots' if you could be about to be one of them?

But I'm not, and neither is anyone else. And before you condescend to tell me I've never been in some of these people's shoes, let me remind you that you've not been in mine.

But shouldn't we be? Shouldn't we recognize that circumstances have as much to do with who we are as we do? That a hard-working boy living in a slum, with no books or regular teachers, isn't going to turn out as well as the same boy living in Beverly Hills? I'm not asking you to imagine that you're in anyone else's shoes, only to accept that being poor isn't necessarily because of laziness or stupidity. And that poor people deserve the same opportunities as everyone else, even if it's a little more expensive to give them those opportunities.

Re:Only one answer

[drinkypoo]

You're saying that me buying business cards (as an example) depends on services that the government provides?

Uh, yes? The transaction is performed with legal tender, which involves the treasury department. The people don't just pocket your money because you can take them to court, which involves the justice department and is backed up by the judicial and later the corrections system. And it all takes place in a nation in which you would have nothing if not for the defense department.

Of course, if the foreign intelligence department and the executive branch (and related assholes) were not constantly stirring up trouble, creating/propping up dictators and assisting with coups in order to create certain financial systems, we wouldn't need to spend so much on defense, which lately has really been offense... but I digress.

And you're not acknowledging that the government PROVIDED you with the internet? Not Al Gore, but the Defense Department, among others....

I acknowledge that DARPA spent a shitload of taxpayer money developing a packet-switching network so that they could send their information around the globe, and that eventually led to the internet, a chaotic system in which domain names are stolen from their rightful registrants, it is nearly impossible to get internet addresses (the kind people use anyway, i.e. IPv4) and in fact many of us can only get access via some horribly slow connection.

In other words, taxes already paid for the internet and now the government does little for me there. It's run by corporations, not by the government, and the only influence the government is willing to have on it is to restrict my activities. In other words, today they only reduce the effectiveness of the internet. Now, if they passed a law guaranteeing net neutrality, I might be impressed.

That comparison being said, there's not pretext in the tax codes that i'm aware of that says that the government is entitled to tax items specifically because they provide a service in tandem with it...

I guess I was the only person paying attention back in civics class, because a lot of people have been offended by my statement. But this nation was frankly founded on the principle of no taxation without representation. The idea was that your representative (or yourself) would prevent you from being taxed unfairly.

Now on one hand, taxes are levied where they can be collected. They are not collected because you are getting n dollars of benefit plus administrative costs. If they were, we'd all be very very pissed off because we could see just what percentage was going to overhead (like literal overhead, the building; the realistic overhead, in bribes; and the kleptocratic overhead, in embezzlements, graft, and other forms of theft.)

But on the other hand, we do get something for our taxes. And typically the things that are taxed are also things the government spends [our] money on. Is all of that money spent there? Sometimes, and then some. Other times, no.

Want corn? That'll be a 50% tax due to government subsidies... Want a steel knife? That'll be a negative amount, due to tarriffs already received.

Instead, it only works in the disadvantageous direction. We ALL pay the tax on the corn, in the form of government subsidies, whether we eat corn or not.

Re:Only one answer

[mcvos]

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

Taxing transactions is silly in any case. Governments should be taxing the use of scarce resources. But as long as the system taxes transactions, it should realise that virtual transactions are virtual, and have no direct relation to the real world. The only thing that has a relation to the real world is when the transactions involve real money: selling in-game gold or items for real money. Or selling your character, even. Or selling property in Second Life. That can be taxed, according to the llaws of the nation in which the recipient of the money lives. Other transactions shouldn't be.

And as I understand it, that's exactly what TFA proposes.

Re:Only one answer

[lordmatthias215]

They never had proof that Capone's actions were illegal- the reason they had to nab him for tax evasion. And commercial transactions are illegal not by the definition of going against governmental law, but by the definition of an action that breaks a preset, agreed upon (you did click "Accept" after all) rule. To my understanding, a EULA is a legally binding contract, and if you break it, it is within the legal rights of the opposite party to bring reasonable (and in a EULA's case, mostly preset) against you. The repercussions of carrying out a commercial transaction on WoW is that both accounts are shut down and the nonphysical "good" that was purchased with physical money is lost to both parties when the accounts are shut down- the transaction basically never took place, and the customer just handed the merchant money for nothing. I'm pretty sure the government doesn't tax me for handing a ten dollar bill to a friend, nor do they tax me for transfering money from one bank account to another (at least under a certain limit?). How then could the government tax such a transaction, when by taxing it, Blizzard has proof that people agreed to a transaction, and shut down both accounts, and basically cancelling the transaction. Furthermore, there's the much simpler point that you do not get taxed for transactions across state lines, so unless you happen to be in the same state as the gold farmer you're buying from, it doesn't make sense to tax the transaction anyway. If they won't tax physical purchases, why tax data purchases, when you don't even actually "own" the data anyway?

Re:Only one answer

[Bastard of Subhumani]

And commercial transactions are illegal not by the definition of going against governmental law

Please try to use the same definition of "illegal" that everyone else uses. Where's the word "contract" on that page?

Now if you mean illegal in the sense of the rules of the game itself (in the sense of "forward passes are illegal in Rugby") then that has absolutely no relevance in the real world outside the game, which is where the tax authorites were last time I looked.

The crap about bank transfers and gifts is just handwaving so that's the last I'll say of it.

Re:Only one answer

[dwpro]

You've diverted a bit from our original discussion that dealt with retirement and healthcare, and the window of "opportunity" for these retirees ould by and large be long past.

My parents actually fall into the less than $25k/year category. They married young. They had children young. They likely had a sub-par educational experience coming from a very small town in a very backwoods area. They have not planned very well for their retirement thus far. Do I or they expect everyone around them (taxpayers ) to start coughing up money because they failed to plan for the future? Hell no.

Simply put, these people had a entire working lifetime to save up enough money to live reasonably when they get old. If they can multiply and add, they can figure out how to save a dollar a day to make sure they won't need handouts(and I think the emotive word fits, in this case) when they are too old to work. I hope I never reaach this point, like my 80 year old grandfather who is currently pushing cedar in a pasture somewhere, though he did save more than enough for his own retirement.

Healthcare and financial aid for low income students are different issues to me, and so I can't comment as easily on those. I do believe that companies bear the brunt of the cost for helping out low income students, as they have the most direct gain from a larger, more diverse workforce to choose from, whereas I would be funding my competition. Healthcare is something we all need, and fits more the mold that you seem to be forcing other issues into, that of chance.

Re:Only one answer

[Kijori]

You say your parents haven't planned well for their retirement, and presumably don't have much saved away but you don't think they should receive any state assistance. How, then, should they get the money to pay for things?

There are chiefly two areas of your post that I strongly disagree with. First is your assumption that if you don't have enough money to retire on it's your fault; this simply isn't true. The factors that could cause you not to have sufficient money saved range from "acts of God" like fraud or theft, through to economic problems like falling property prices and so on. What about someone who immigrates to the US at 50? No matter what job they have they won't manage to put away enough. The same goes for someone on a low-wage job. If you're earning less than $13,000 a year there is no way you could put away enough to survive with no Government help.

This is the second point with which I really disagree. I think you're under-estimating heavily the amount of money you need to save to retire without any state assistance. The Department of Health and Human Services puts the poverty threshold for a single person at $9,800 per year. A ballpark estimate for the amount you need to save, from 20 until you retire at 67 and living in retirement until you're 78 (the average) requires you to save $3,574.72 every year. And that's just to stay above the poverty threshold - 10 times your estimate of a dollar a day. To have any money for luxuries you need to save more. If you have any dependants you need to save more ($4,647.13 a year for one dependant). If you earn less than $13,000 and have no children, or less than 16 or 19 thousand dollars a year with 1 and 2 children respectively, you cannot afford to stay afloat both now and in retirement without help.

Estimating that your parents will retire in 20 years, they need to save $27,000 a year to have enough money to survive unaided in their retirement - let's reduce that to $20k since they probably have some savings. But since even this is clearly impossible, if the state doesn't fund them they will have to rely on charity to be able to feed, house and clothe themselves. I hope they have nice neighbours.

Re:Only one answer

[billcopc]

Not true. If they can somehow prove that gold farming is detrimental to the functioning of their game world, they can sue. Any real player can attest that gold farmers are largely unwelcome as they just get in the way and kill the in-game economy. They make the game less fun for everyone else either because they flood the game with cheap items, undercutting legitimate craftspeople, or they kill-steal, hoard minerals/herbs/whatever preventing legitimate players from acquiring them... much like the RIAA's unsubstantiated claims, it's hard to put a number on how much money Blizzard actually loses because of Chinese farmers, but when people are paying $15 a month for a subscription, if their experience is negatively affected by non-players there's probably a noticeable number of players who just stop playing it and move on.

Analogy time (slashdot loves analogies!). If you're running a golf course, you charge people to play on your course. Now if a bunch of chinese kids showed up and stood all over your course, obstructing your paying customers, putting excess wear on your lawns, pooping in your restrooms, and of course stealing players' golf balls and selling them off the side of the road... I think you'd be angry and so would your players. Sooner or later, people would just stop coming to your golf course because the parasites spoil all the fun. A good business owner would get rid of these trespassers ASAP, and make sure they don't come back.

Why?

[Anonymous Coward]

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

Re:Why?

[superwiz]

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

Re:Why?

[Anonymous Coward]

Of course it does.

Professional courtesy, don't you know.

That pretty much nails it on the head.

[Churla]

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

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

Re:That pretty much nails it on the head.

[csplinter]

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

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

Re:That pretty much nails it on the head.

[Churla]

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

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

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

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

Re:That pretty much nails it on the head.

[UbuntuDupe]

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

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

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

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

Re:That pretty much nails it on the head.

[khallow]

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

Re:That pretty much nails it on the head.

[csplinter]

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

Re:That pretty much nails it on the head.

[gEvil (beta)]

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

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

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

Re:That pretty much nails it on the head.

[gEvil (beta)]

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

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

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

Re:That pretty much nails it on the head.

[Churla]

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

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

Re:That pretty much nails it on the head.

[MeanderingMind]

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

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

Soooooo much nicer only having to worry about federal.

Re:That pretty much nails it on the head.

[nickname225]

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

Re:That pretty much nails it on the head.

[csplinter]

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

In theory if you buy something on line from a retailer who has a storefront in Texas you're supposed to be paying sales tax on it as well.

To clarify your point, it is the responsibility of the seller to collect sales tax of course, it's not a buys tax after all :-)

Re:That pretty much nails it on the head.

[nickname225]

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

Re:That pretty much nails it on the head.

[ect5150]

Sorry man, that just doesn't make sense. The dividends are payments made to the shareholders. You get taxed on that as a form of income. Companies are not required to pay dividends. They can instead choose to reinvest the money into new projects, to generate new cash flows will should drive the stock price up, having the same end effect (i.e. - more money in the shareholder's back pocket) If they wish 'invest' their money in WoW gold, it'd be no different than investing in English Pounds or some other foreign currency. The difference is, what happens to the your investment when Blizzard puts in a ladder and ladder seasons like they did when released a patch for Diablo 2. The real stupidity of the law's idea is an economic one. Asking the question of whether or not to tax isn't the issue. If it is, then the government is just looking for a revenue stream. The only reason to tax any of this is to discourage playing of WoW. And I don't see why the government should take a stance on this. The article mentions what the grandparent mentions. Selling items for real USD for your real-life bank account should be taxed, assuming you fall under income taxes.

Re:That pretty much nails it on the head.

[Jesufication]

I didn't RTFA, but since it's against the ToS to sell WoW's gold, I would assume that making WoW gold falls under the category of personal activity. If we were talking about Second Life, however, where the in-game currency has a direct exchange rate into dollars, that falls under the commercial category.

Re:That pretty much nails it on the head.

[cowscows]

If rich people want to hide their money in video game currencies, I say let them. That'll last until somebody loses a few million dollars worth of real money when their account gets banned, or a database server crashes and the data is lost, or a company suddenly folds and takes their game offline.

Every MMO out there has a user agreement that lets them shut down your account for any reason, and no company is dumb enough to take legal responsibility for safeguarding your in-game currency. Second Life is doing some weird stuff with the ownership of in-game assets, but if they ban your account, they're not going to cut you a check for the real world equivalent of your game money.

Even if you're not worried about your money flat out disappearing, don't forget that MMO economies have all sorts of built-in ways for the game developers to influence them, in drastic ways that the fed only wishes it could affect the US/global economy. Inflation, deflation, and in-game taxation can be very unpredictable, and truly could change at the whim of a single individual. No one intelligent would put serious money into a situation like that. If I ran a game and suspected of people using it to harbor money from taxes, I'd be awfully tempted to mess with them, just for being so dumb.

Re:That pretty much nails it on the head.

[UbuntuDupe]

If they wish 'invest' their money in WoW gold, it'd be no different than investing in English Pounds or some other foreign currency. The difference is, what happens to the your investment when Blizzard puts in a ladder and ladder seasons like they did when released a patch for Diablo 2.

No, under the principle the GGP set up, those intermediate gains, denominated in WoW gold, should not be taxed, despite performing functionally the same thing as dollars or other currencies.

As for making sense, I don't see how:

"The dividends are payments made to the shareholders. You get taxed on that as a form of income. Companies are not required to pay dividends. They can instead choose to reinvest the money into new projects, to generate new cash flows will should drive the stock price up, having the same end effect (i.e. - more money in the shareholder's back pocket)"

contradicts my point. And what shareholder would keep money in his back pocket? Or were you just trying to dumb down your explanation?

Re:That pretty much nails it on the head.

[Bill_the_Engineer]

I think everybody is confusing sales tax with income tax. Buying things mail order from entities outside your home state is generally non-taxable. Alabama wants us to voluntarily pay sales tax on things purchased on the internet.

IANAL or Tax specialist, but the IRS is not in the business of collecting sales taxes just income taxes. So the age old rule of all profits (regardless of what was done to generate it) is taxable. Most hobbyists will probably never generate enough real currency to actually have to pay taxes.

Personally I think this is pretty much ado about nothing, UNLESS YOUR ONE OF THOSE GD SPAMMERS ON WOW TRYING TO SALE GOLD AND ACCOUNTS...

Of course congress could go crazy and try to tax virtual money in games...

Re:That pretty much nails it on the head.

[Jesufication]

The problem with WoW is that it's against the Terms of Service to sell gold. I'm no lawyer, but I would assume that by violating the ToS, you technically forfeit any ownership of the gold and therefore don't really have a right to anything of value. I guess that's only if you get caught, though.

Re:That pretty much nails it on the head.

[Jonny do good]

The problem is that under that principle, investors could evade taxes. Basically, investors have long salivated at the thought of deferring taxation of all intermediate gains (reinvested dividends) until spent on consumption. (Yes, you can do this with retirement accounts, but I'm talking about once those are maxed out.) If you exempted those good-as-money gold transactions from taxation, investors could do something similar. Basically, they could set up "pseudo-dollars" that are instantly redeemable for real dollars (and vice versa). Then they would be exempt from dividend taxation until they want to spend the dollars on consumption. Now, I actually support the idea of allowing deferral of taxation on dividends that are re-invested, but I just wanted to point out the problem (from the IRS's standpoint) of exempting WoW gold.

I would have to disagree with your logic. If the "pseudo-dollars" that are intantly redeemable are never taken out of the game it is much more like a company reinvesting its profits to fund future growth (or holding it for cash reserves) than the investor re-investing dividends. Hence once the money is taken out it is much more like a capital gain since the only method to get the real cash is to "sell" your stake.

Capital gains can be deferred until death under current U.S. law so there is no need to adjust the tax code, the IRS only needs to keep tabs on transactions so that those who profit properly report their cost basis and sales price. If the "investment" in the game is only time the cost basis is zero, if they purchased some of their virtual assets with real money then they have a cost basis to reduce their gains (and we can argue the money spent playing the game such as internet connection, computer hardware, subscription fees, etc should be included in the cost basis and pro-rated on their percentage of use toward the game like other business expenses). One could even argue the active/passive investment rules here (500 hours or more per year involved in managing a business constitute active business activity). I don't really see the difference, and currently I don't think that the IRS does either.

Re:That pretty much nails it on the head.

[gEvil (beta)]

Interesting that you're completely ignoring my prior posts to you that show that the state doesn't support your point of view on taxes...

Re:That pretty much nails it on the head.

[Sancho]

Note: I am not a lawyer, and the below does not constitute tax advice.

Sales tax is not the same as income tax. Income tax is tax on money that you make--on your income. It largely doesn't matter how you made the money (when it does, you file exemptions, so that the government still knows how much money you made--just not all of it may be taxable).

If you sell 1000 World of Warcraft gold for $300, you are obliged to report that $300 on your federal income tax return. If the formula they are using that year indicates that you must pay taxes on that amount, then you are obliged to pay taxes on that $300. It was income. You pay income tax.

If you buy 1000 World of Warcraft gold for $300, and both the seller and you are in a state which has a sales tax, then the seller is obliged to charge sales tax, and you aren't obliged to pay federal income tax on the part of the purchase which was sales tax.

If you buy 1000 World of warcraft gold for $300, and you live in a different state from the seller, most states require that you pay sales tax on the purchase--though almost no one actually does.

It's all absurd, really. The complexity of tax law means that most people don't question the requirements (as I didn't, above) and just pay. People with enough to lose hire specialists in tax code to manage things for them. This should not be required, and that it is implies that the tax laws need revision and simplification.

Note: I am not a lawyer, and the above does not constitute tax advice.

Re:That pretty much nails it on the head.

[UbuntuDupe]

I would have to disagree with your logic. If the "pseudo-dollars" that are intantly redeemable are never taken out of the game it is much more like a company reinvesting its profits to fund future growth (or holding it for cash reserves) than the investor re-investing dividends.

I don't see the difference. Treat the investor as if here were a company. Now, how do you distinguish retaining profits from re-investing dividends?

Capital gains can be deferred until death under current U.S. law so there is no need to adjust the tax code,

Unrealized capital gains can be deferred. Capital gains resulting from rebalancing my portfolio, cannot. From the standpoint of my investing, setting dividends on "automatic reinvestment" is the same as "holding on to an investment that has appreciated", yet only one is taxed.

Re:That pretty much nails it on the head.

[Anonymous Coward]

If you think WoW gold (i.e. bits in a game with a limited shelf life that actually belong to someone else who can ban me at will say when pressured by the IRS or when they become irritated or when they sneeze wrong) is a stable enough long term way to defer taxes then go for it but your risk profile is a bit higher than mine.

Re:That pretty much nails it on the head.

[corbettw]

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

That money is already taxed. When you convert the WoW gold into real money, thanks to the magic of eBay or Ubid, it's income, and is required to be disclosed on your income tax statement if you earn more than $500 per year doing so. So I'm a little confused why this is even being discussed or debated?

Re:That pretty much nails it on the head.

[Anonymous Coward]

They would be able to either deduct their monthly access fees or use those as the basis

Re:That pretty much nails it on the head.

[Jonny do good]

They would be able to either deduct their monthly access fees or use those as the basis

Exactly... They can be used to offset the gains but not as a standard deduction since there are in essence the investment. Other items can be included as well such as % of other expenses related to playing the game (ie. hardware, Internet connection, office space, etc.).

In order to uses these expenses as a standard busines deduction one would have to show evidence that he/she is attempting to profit from playing the game. Now one would open themselves up to potential audits because one of the most likely way to get audited is to claim something commonly used as a hobby as a business.

Re:That pretty much nails it on the head.

[Jonny do good]

I don't see the difference. Treat the investor as if here were a company. Now, how do you distinguish retaining profits from re-investing dividends?

Retained profits is called retained earnings, these result from net income reported to the IRS. Dividends recieved from other firms end up as part of net income and are taxed approriately (a combination of the owning firms profits/losses, and the percentage of ownership of the other firm determine these rules). A company with a stake of over 80% in another firm doesn't pay taxes on dividends recieved to begin with. If they own less the rules change some but they sre still not taxed on all of the dividends (I'm sorry I can't remember the exact numbers here, but they are in the IRS tax code if you want to sift through it).

Unrealized capital gains can be deferred. Capital gains resulting from rebalancing my portfolio, cannot.

This was my point. If you sell "virtual" items for real money then you have realized the gain. This is how you rebalance your portfolio. One could argue that changing the assets within the game constitute rebalancing, but it could be argued the other way as well since your in game asstets are much like ownership in a company. It isn't "you" that rebalanced your assets, it is the "company" operating in the game. Now if you move assets from one game to another the IRS could have an issues but it could also be argued that all of your in-game characters, even in different games, are part of one large company operating in different "markets" kind of like a multi-industry company.

Re:That pretty much nails it on the head.

[UbuntuDupe]

Retained profits is called retained earnings, these result from net income reported to the IRS.

Yes, and if I throw them off as a dividend, an additional tax hits, which does not hit if I had re-invested them. As an individual investor, if I don't throw off a dividend of that gain to my "consumption" money, I ... er, still pay the same tax. My point is that since that money is still invested, it has not yet been realized in any meaningful sense.

This was my point. If you sell "virtual" items for real money then you have realized the gain. This is how you rebalance your portfolio.

And as above, I don't think that merely rebalancing is a realization of a gain: I can't yet spend it on consumption!

Re:That pretty much nails it on the head.

[Jonny do good]

My point is that since that money is still invested, it has not yet been realized in any meaningful sense.

I will not try to argue that double taxation is "good" or that money reinvested "shouldn't" be taxed, only that the current tax code taxes coporate profits and then dividends as well as capital gains. In essence when you re-invest dividends it was realized in a meaningful way, you had the opportunity to put it in a checking account, purchase more shares in the same company, or rebalance your portfolio by purchasing another investment. When you cash of of a company (and realize a capital gain/loss)to rebalance your portfolio you have the same options again. So in fact you did realize it in a meaningfull way because you had the opportunity to do whatever you want with that money which was previously tied up in a company. This is exactly why mutual funds often rebalance their portfolios at year end and often sell their losers in order to offset gains and dividends that they realized throughout the year. These funds often repurchase those same shares after waiting the required 30 days.

Re:That pretty much nails it on the head.

[UbuntuDupe]

I guess you and I have different definition of what constitutes a "meaningful sense". You claim that having the "opportunity to do whatever I want with the money" counts as realzing it in a meanful way. But when I set my mutual fund on "dividends: reinvest", there is never a single moment when I could do whatever I want with the money without selling. It *never* shows up in any cash accout. I simply have more shares one day later. It is *still* tied up in the investments. It meets, in essense, every characteristic of an unrealized gain.

In fact, since the writeoff of capital losses is limited, it's possible for me to owe taxes, yet have lost everything. Oops.

Re:That pretty much nails it on the head.

[illumin8]

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

I get the point, but then why aren't investors putting their money into WoW gold right now? I think there are a couple reasons for it:

1. An artificially created economy where thousands (probably millions) in gold is generated every day by monsters means inflation is inevitable because the total supply of money keeps increasing faster than people can take money out of the system (ask a high level player how much gold they've accumulated and you'll see what I mean). This drives down the value of said gold, so it would be a terrible investment because you don't get interest on your gold in WoW.

2. There is no way (that I know of) to purchase gold without using a credit or debit card. I don't know of any way to buy something on a credit or debit card without first paying taxes to the IRS on that money. Until in-game gold sellers start offering direct deposit from my paycheck pre-taxes like an IRA then I don't see how it will ever work.

Am I missing something here?

Re:That pretty much nails it on the head.

[UbuntuDupe]

You're right. I was only critiquing the principle the GP was using to justify non-taxation, not whether it was currently feasible to evade taxes this way. But as long as it's a potential avenue, the IRS will be interested.

Re:That pretty much nails it on the head.

[Fujisawa Sensei]

Since Blizzard owns all the gold in WoW, users's pay a monthly fee to have access to a portion of it and through their actions in the game can gain access to more or trade that access for access to items; shouldn't Blizzard be taxed on ALL the gold and items in WoW?

Re:That pretty much nails it on the head.

[Fujisawa Sensei]

If a court rules that you actually own the gold, and its a taxable asset, that section of th TOS may be no longer be valid.

Re:That pretty much nails it on the head.

[Jesufication]

I would hope that they'd take the ToS into account when they made the ruling, but I see your point.

Re:That pretty much nails it on the head.

[Red Flayer]

No one intelligent would put serious money into a situation like that.

I disagree. The risks are weighed against the expected returns/savings, an intelligent individual could make out like a bandit. As more online economies mature it's be possible to get a diverse enough portfolio that a lot of the risk would be mitigated.

Institutional investors, on the other hand, are more risk-averse, and also must answer to more regulatory bodies, as well as their clients.

As you imply, though, it's not going to happen until the site operators are willing to take responsibility for the funds... which is not likely.

Re:That pretty much nails it on the head.

[Jonny do good]

But when I set my mutual fund on "dividends: reinvest", there is never a single moment when I could do whatever I want with the money without selling. It *never* shows up in any cash accout. I simply have more shares one day later. It is *still* tied up in the investments. It meets, in essense, every characteristic of an unrealized gain.

I will agree that we disagree on what constitutes a "meaningful sense", but I would like to point out that you made the choice to set a mutual fund to reinvest. In essence you simply appointed an agent to make your life easier, but you (or your appointed agent) really did get the cash and make the decision to reinvest.

I wouldn't argue against you (I don't agree with the double taxation of dividends in principle)but making a change in the tax code to allow what you desire is essentially turning your mutual fund investment into a traditional IRA. You have to understand that the tax code is more than just a way to get revenue for the government, it is also designed to influence behavior. One of the most current examples was Bush's tax cuts, particularly the allowance of large immediate "depreciation" of the purchase of fixed assets. This was designed to encourage small businesses to buy more (since going beyond the cap of about $400K in capital expenditures reduced this immediate deduction) and it did work. Tax-deferred investments are capped at a limit so that the "wealthy" can't just keep all of their investments there.

Re:That pretty much nails it on the head.

[UbuntuDupe]

but making a change in the tax code to allow what you desire is essentially turning your mutual fund investment into a traditional IRA.

Not quite. A traditional IRA is (IIRC): your contribution is deducted from your taxable income, but you pay taxes at the end, and there are age restrictions for withdrawls. In what I propose, your contributions come from taxed income AND your withdrawls are taxed as well (if there is a gain); you're just not taxed in between.

Tax-deferred investments are capped at a limit so that the "wealthy" can't just keep all of their investments there.

I don't see this as a bad thing: that means they're keeping it invested longer. Once it becomes income for consumption, then it's taxed. Though I agree there's room for corruption ("Really, my sports car was part of my business!") :-/

Re:That pretty much nails it on the head.

[lgarner]

You're right, IRAs work this way. So do your house and stock investments. I don't see virtual money as being very much different. In all cases, you are not normally subject to taxation until you realize, or "cash-out", your gains.

To tax virtual money, there would probably be a few more rules. For instance, you should be able to deduct your game fees and other expenses up to the amount of your realized gains, similar to gambling losses.

Re:That pretty much nails it on the head.

[KDR_11k]

What's to stop someone from creating a pseudogame that really is just a tax evasion scheme? Could a bank put a videogame into its online banking interface in order to evade the responsibilities of a bank?

Re:That pretty much nails it on the head.

[RobertLTux]

easy solution the IRS just needs to buy an island in Second life and have a "tax office" in the game 1040SL anyone??

Re:That pretty much nails it on the head.

[khallow]

My take is that it would probably be illegal. Doesn't mean that someone, such as an enterprising slashdotter, couldn't make some money off of it first before the IRS gets around to decreeing it illegal.

Re:That pretty much nails it on the head.

[lordmetroid]

Darn, I was just about to write a game purely for business meetings and deal makings so that exchange of goods wouldn't be taxed :)

Re:That pretty much nails it on the head.

[UbuntuDupe]

You mean, like PayPal? They evade the responsibilites of a bank, while hiding real-world transactions within a game.

*come on, don't contest charge, don't contest charge ... YES!*

Re:That pretty much nails it on the head.

[LinuxDon]

Your story seems to have some flaws:
1. Linden labs already pays taxes over all money they receive or pay out.
2. There is no insurance at all that the non-existent property will keep it's value.

In the end, there is nothing at all, and it's just a service being delivered by commercial company's.
The virtual ground in Secondlife is actually worth nothing at all, since you are paying a monthly fee to keep the ground in existence. Not paying this monthly fee (over which taxes are being payed by linden labs) would cause the non-existent property to disappear.
Also, these commercial company's could cancel the services without any obligation at all. If you were paying taxes over this non-existent property, there must be much more insurance than there is now. Also, what would happen with your "land investment" when linden labs would decide to release an unlimited amount of new land? Prices would drop to the ground instantly. This is something that just can't happen with real world real estate because the amount of space on the world/country's is limited.

An example: I'm "investing" (just 10 dollar) in a virtual stock exchange (not associated with Linden Labs) based on SecondLife company's. A few days ago the following message appeared for a company in which I own stock: "Market Alert: Trading in this security has been temporarily halted". The invested money in this company just vanished into thin air because the people behind the stock exchange decided that fraud may have been committed. No official investigation will be done and no government is involved.
There is no way the government can have the players of SL to pay taxes for stuff that really has no value or insurance of that value at all.

In the end, SL is just a game and the players should expect their money to disappear into thin air sooner or later, without being able to claim any jurisdictional rights at all.

Re:That pretty much nails it on the head.

[darkmeridian]

I think you mean IRS hobby loss rules.

Re:That pretty much nails it on the head.

[PhxBlue]

I know the parent post wasn't meant to be funny ... but it's so damn in-depth that I would have to mod it funny anyway. If I had mod points, that is.

Re:That pretty much nails it on the head.

[cgenman]

If WoW gold is a taxable value exchange, can I pay my taxes with it?

Re:That pretty much nails it on the head.

[Fujisawa Sensei]

Considering there are terms of service, check out this thought on the gold as an asset: http://slashdot.org/comments.pl?sid=230045&cid=186 66169

Re:That pretty much nails it on the head.

[Jesufication]

That -is- an interesting thought, but seeing as you can't buy gold from Blizzard either, I don't think it's a taxable asset if the courts take the ToS into account because there's no determinable monetary value of the gold itself.

Re:That pretty much nails it on the head.

[Fujisawa Sensei]

Just because its not for sale doesn't make it not an asset.

Since they're taxing on virtual inventory, what is the 'virtual' music inventory of the *AA? I don't think that the courts will want to set that precedent.

Re:That pretty much nails it on the head.

[ch-chuck]

Best thing to do - is not hold it past the end of the calendar year and dispose of it at a loss and take the full loss as a deduction against your WOW earnings.

Actually, best thing to do would be to use the weapon to slay the local tax collector and take his gold.

Re:That pretty much nails it on the head.

[dajak]

There may be a potential banking business model in this for people in countries that don't pay taxes on virtual money if interest paid on virtual loans is tax-deductible (against real income).

Summary

[chanrobi]

Is pretty much useless, get the 55 page paper here instead:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id =969984/

This could mean....

[willie_nelsons_pigta]

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

Sorry, but I couldn't help it.

Re:This could mean....

[sharperguy]

rofl Yea I doubt that very much

What is this bitch smoking?

[zyl0x]

FTFA:

Games like WoW raise income tax issues, in part because items in them, though part of a "game," have real market value. In [my] paper, ... I discuss two of the issues: the taxation of loot "drops" and the taxation of exchanges within the game, such as the exchange of a virtual sword for gold.

I don't think I really have to say anything after that aside from "Wow, what an idiot!" Obviously she's unaware that something cannot have "real market value" when it's illegal to sell. It's like taxing people for existing because their organs and blood can be sold on the black market. This is what happens when people develop "professional opinions" about shit they know absolutely nothing about.

Re:What is this bitch smoking?

[Anonymous Coward]

SHHHH, don't give them ideas, dammit.

Re:What is this bitch smoking?

[MBGMorden]

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

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

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

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

Re:What is this bitch smoking?

[esme]

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

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

-Esme

Re:What is this bitch smoking?

[drinkypoo]

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

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

Re:What is this bitch smoking?

[328iS]

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

Re:What is this bitch smoking?

[Volante3192]

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

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

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

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

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

Re:What is this bitch smoking?

[Churla]

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

Re:What is this bitch smoking?

[Deadstick]

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

rj

Re:What is this bitch smoking?

[MrShaggy]

Look at Al Capone.

Thats the only reason they got him.

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

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

Re:What is this bitch smoking?

[CastrTroy]

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

Re:What is this bitch smoking?

[Churla]

Depends on how honest the cops are.

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

Um.... nevermind.

Re:What is this bitch smoking?

[Suzumushi]

Actually, selling something that you don't own, without the express permission of the owner is quite illegal. WoW's TOS explicitly declares that user accounts and any and all virtual property is the property of Blizzard.

So until Blizzard releases ownership of these accounts and the virtual property held by them, declaring income from the sale of said account or property would be tantamount to admitting theft or fraud, or whatever the offcial law is against selling someone else's property without their consent. Therefore, taxing of this "income" is irrelevant.

Re:What is this bitch smoking?

[analog_line]

IANAL, however, I have a brain...

There's an argument to be made that Blizzard is being defrauded, since they specifically claim all rights to the virtual objects in their game, and say up front that account access merely grants a non-transferrable right to use the virtual objects they generate within the game space.

There's an argument that the customer who buys WoW gold is defrauded because the merchant is claiming a right they don't have by selling it to them, but the customer has more than likely agreed to the Terms of Service (since you don't see people without WoW accounts buying WoW gold to resell, since without agreeing to the Terms of Service and maintaining an account, you can't store that inventory anywhere) and would probably be considered as part of the fraud or some such. Like I said, IANAL, but I'm pretty sure you couldn't get away with claiming a seller defrauded you.

Basically it comes down, like the article the article originally referenced says, to a final word on the ownership of WoW gold being handed down, and that just hasn't happened yet. If Blizzard doesn't have the right to negate a transaction because there is some form of ownership by the player, then that's a much bigger foothold for the tax man. If Blizzard retains all ownership, then anyone defrauding Blizzard by "selling" WoW gold needs to pay the taxes on those ill gotten gains (I'm pretty sure that you're required to report all income, whether legal or illegal), but normal players can't reasonably be taxed, because they never had ownership of the Sword of Awesomeness that dropped for them, so they can't even barter for it. I can't be taxed for the value of a painball gun I am being allowed the use of by the arena owner if I hand it to my friend next to me. The owner may say I can't do that, but we're not talking a taxable transaction. However if I buy a gun there, and then sell it to someone within the arena, that's taxable even if it's within the game.

A bit rambling, but I think there's something worth thinking about in there.

Re:What is this bitch smoking?

[MBGMorden]

I went into this in my post. When I sell you an account, or gold, the stuff never actually leaves Blizzard's servers. You're not really selling it - you're selling your ACCESS to it.

Re:What is this bitch smoking?

[Anonymous Coward]

Im not an accountant but im pretty sure that if you dont make $600 per year, you don't have to claim it. if that is true, that should mean that the hobbyist is exempt from this if they choose not to claim it.
can anyone tell me if I am right or wrong? Like I said I am not an accountant, but I am pretty sure I've heard of this rule before.

Re:What is this bitch smoking?

[Suzumushi]

Access to the account is also solely at the discretion of Blizzard.

You are not understanding the basic principle of Blizzard's TOS. Section 8 clearly states that "Blizzard does not recognize the transfer of Accounts. You may not purchase, sell, gift or trade any Account, or offer to purchase, sell, gift or trade any Account, and any such attempt shall be null and void."

The information "never leaving Blizzards servers" is also irrelevant.

Re:What is this bitch smoking?

[MBGMorden]

No, it's not. If the information never leaves Blizzards servers, then there never was any transfer of possession. You can't be legally held to be selling something that is never removed from the posession of the owner (nor is it expected to be in the transaction).

The line that you state is from Blizzard's *Terms of Service*, which was the whole original point. That is not the law; it's Blizzards rules. If they feel like cutting off access to someone who buys an account they're free to do so, but doing something against the ToS in no way violates a law.

Re:What is this bitch smoking?

[Mordiceius]

True, being that we don't OWN WoW characters, how can that be taxed. And moreso, couldn't Blizzard then find out who all sold the stuff through the IRS and then sue those people (because technically by agreeing with the TOS they are signing a contract, right?).

Re:What is this bitch smoking?

[rolofft]

Al Capone wouldn't have gone to jail if tax liability were not incurred on black market transactions.

http://en.wikipedia.org/wiki/Al_Capone#Federal_inc ome_taxes_and_downfall

Re:What is this bitch smoking?

[Suzumushi]

The "Law" you are saying doesn't exist, is property and contract law. By agreeing to the TOS (which you must do to play) you are entering into a binding contract which sets forth the terms that are listed in the TOS. If you violate the TOS, you are in breach of contract and subject to both criminal and civil penalties. In the case of "selling an account," you are selling something that does not belong to you, as I explained in the first post. As another poster also implied, this is called fraud, and there is a law against it. I suggest reading the definitions of contract and property in a legal dictionary or in your local or federal statutes.

To put it in simple terms, by your line of reasoning, I should be able to sell a house that I am renting. The house never leaves the land it is on, and I'm just selling "access" to the property, etc.

This is not to say that WoW's TOS is a law, but rather it is a contract protected by centuries of contract law.

Re:What is this bitch smoking?

[Anonymous Coward]

Blizzard already proved that the terms of service and EULA of a video game are a legally enforceable contract when they sued the group BNetD for EULA violation.

What's the story here?

[east coast]

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

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

Re:What's the story here?

[zyl0x]

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

It's preposterous.

Re:What's the story here?

[east coast]

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

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

Re:What's the story here?

[Anonymous Coward]

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

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

Re:What's the story here?

[zyl0x]

Also FTFA:

In [my] paper, ... I discuss two of the issues: the taxation of loot "drops" and the taxation of exchanges within the game, such as the exchange of a virtual sword for gold.

See? She's not only talking about taxing real profits, she's talking about taxing virtual profits as well! I agree with taxing real profits, but taxing in-game, virtual profits?? Give me a break!

Re:What's the story here?

[Firethorn]

traded IN GAME for a virtual currency

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

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

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

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

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

*Or competitor
**Think blue book

Re:What's the story here?

[zyl0x]

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

Re:What's the story here?

[MeanderingMind]

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

Re:What's the story here?

[east coast]

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

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

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

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

Re:What's the story here?

[Anonymous Coward]

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

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

I agree with taxing real profits

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

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

Re:What's the story here?

[Zenaku]

Do you understand the difference between discussing something and arguing for it? She discusses two issues. She argues for taxing only one of them -- the one in which someone cashes out.

-1 (Poor Reading Comprehension)

Re:What's the story here?

[Akaihiryuu]

I agree...if someone sells WOW items/gold/etc in the real world for real-world money, then it should be taxed just as anything else is. However...since this is a violation of the game's EULA (and Blizzard bans people for it), it shouldn't really be an issue. But there are a lot of people making lots of real money from Second Life, and I don't see any reason for them not to be taxed on that just the same as everyone else is.

Re:What's the story here?

[sr. taquito]

I think you hit the nail right on the head with "It's preposterous"

Re:What's the story here?

[Sancho]

She discusses those issues. She does not promote taxation of in-game profits. It's clear as day right here: "From a policy perspective, my view is that drops and purely in-game trades should not bear income tax." but that doesn't mean that, as a subject, it shouldn't be discussed and evaluated.

Re:What's the story here?

[LocoMan]

That's only starting with the complexity that would come from tax on online drops. Talking on WoW terms (that's the only one I've played) what's the base price?. Auction House price?. Vendor price?. A blue (rare) item can go for a few hundred golds on AH yet sells for 5 or 6 gold to vendors. What about BoP items (bind on pickup, become soulbound when you pick them up. Most of the better stuff work this way)? Can't sell them on ebay unless I sell the entire character, and they're not worth much in gold to vendors. And what happend when a new expansion comes out?. When TBC came out you could get green (uncommon) items out of simple quests or drops from regular monsters that were better than epic items you got from endgame bosses beforehand. Or what if Blizzard decides to release a patch tomorrow that changes the value of gold at all, or just decide to shut down WoW at all?. That's without going into international servers or people from other countries (I'm from Venezuela, for example, and play on european servers).

Re:What's the story here?

[Firethorn]

Please note - I only played WoW for a few months. I'm not much for online games.

what's the base price?. Auction House price?. Vendor price?. A blue (rare) item can go for a few hundred golds on AH yet sells for 5 or 6 gold to vendors.

Note the 'blue book' remark. To continue on that theme, vender sales would be what the used car dealer or maybe even what the scrap dealer will pay for the item. Auction House prices would be private party sales.

What about BoP items (bind on pickup, become soulbound when you pick them up. Most of the better stuff work this way)? Can't sell them on ebay unless I sell the entire character, and they're not worth much in gold to vendors.

Soul bound items, being non-transferable, would have virtually no value other than scrap prices from the merchants. Of course, Blizzard never intended to have the gold farmers around, which has had the effect of artificially raising the gold supply, resulting in increased prices. I think that the proliferation of soul bound items is intended to prevent somebody from just buying all the greatest stuff, make them actually play if they want something.

And what happend when a new expansion comes out?. When TBC came out you could get green (uncommon) items out of simple quests or drops from regular monsters that were better than epic items you got from endgame bosses beforehand. Or what if Blizzard decides to release a patch tomorrow that changes the value of gold at all, or just decide to shut down WoW at all?. That's without going into international servers or people from other countries (I'm from Venezuela, for example, and play on european servers).

Same deal as with anybody who's invested in Zimbabwe in the last decade. Even real-world assets come with risk. They could discover contamination and have to evacuate you from your home tomorrow. Your country could decide to nationalize the businesses you have stock in and pay sub-standard prices for them. Or even just decide to run the mint non-stop and increase inflation 1500%. New regulations could make your business illegal or at least unprofitable. They could discover that a company you have stock in had a group of embezzelers in control, now they find out that the corporation is bankrupt. A fatal flaw could be found in your car, the manufacturer goes belly up, your warrenty with it, causing it's blue book value to go into the ditch.

If you loose money because of something like this, you write it off. It's only when you convert it to real currency(IE cash out) that you're taxed. If they went further in, a market crash would result in lower payments.

profiteering...

[Anonymous Coward]

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

Write Offs

[JavaLord]

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

Re:Write Offs

[khallow]

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

Re:Write Offs

[Wingnut64]

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

Re:Write Offs

[Anonymous Coward]

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

Re:Write Offs

[Anonymous Coward]

Besides epics aren't transferable, right? So there's no way (unless you sell off the account) for someone else to use those items.

Actually, some epics are BOE (Bind on equip) and are transferable. Typically these are ninja looted out of greed. Other times people ninja loot epics just to vendor them for little gold, as a griefing tactic.

If someone ninja'ed your epic weapon, and you gold farm for a living, that would be like someone stealing your new office fax machine in a regular business.

Re:Write Offs

[raehl]

Only if you can show that the $15 was spent in a business activity. In general (although the list of things that factor in is more extensive) the IRS considers something to be a business activity if you're doing it for-profit. The easiest way to show that you're doing something for-profit is to actually profit on it.

Absent that, there are some other things you can do to show that an activity is for-profit, but you'd probably have a tough time making 'playing WoW' meet those criteria. The IRS would regard playing WoW as a hobby, for which expenses are not deductible.

Why Not...

[Greyfox]

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

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

This is not hard

[Sycraft-fu]

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

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

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

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

Re:This is not hard

[lionchild]

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

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

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

Re:This is not hard

[NealTse]

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

Re:This is not hard

[CastrTroy]

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

Re:This is not hard

[mopower70]

Which, of course, means that your monthly subscription, Internet connection, and hours played now become tax deductible costs of doing business. Not a bad way to make a living if you can hack it.

Re:This is not hard

[2short]

"The government can only tax 3 things. Tangible things, intangible things, and that which is real."

This is not terminology that appears in the (US) tax code. The tax we are talking about here is income tax. You make income, it is taxable. Simple. The fact there is or is not a computer game involved is completely irrelevant, as is the tangibility of whatever someone may be giving you money for. The question is: You aquired money, yes or no?

"money" is not taxable. Income from interest earned on money in a bank is taxable, even if theat bank is "off-shore". Certain foreign banks (that people tend to call "off-shore") are freindly about not mentioning to the IRS that they paid you interest. This does not make that income untaxable, it just makes it easy to cheat.

Re:This is not hard

[lionchild]

The document from which all tax-law is drawn, is very broad, which is why virtual assets could be taxible:

http://www.law.cornell.edu/constitution/constituti on.amendmentxvi.html

Re:This is not hard

[2short]

People who don't know what they are talking about focus on amendment 16 as establishing the income tax. Amendment 16 is changing the formulation in Article 1 section 2, paragraph 3: "Representatives and direct taxes shall be apportioned among the several states which may be included within this union, according to their respective numbers..." Amendment 16 just says skip "apportionment", which was all about counting slaves as 3/5 persons, and was in conflict in any case with the uniformity requirement of the language which actually grants the power to levy taxes. Namely, Article 1, section 8, paragraph 1:

"The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States"

Which is certainly broad. Congress can theoretically tax whatever the heck they think it is a good idea to tax. When I said the language you used (tangible/intangible/real/whatever) did not appear in the tax code, I meant those laws which congress has passed that actually do levy taxes. These laws establish various sorts of taxes on income.

"Virtual assets" could be made taxible in the future in the sense that Congress has the power to establish a tax on them, but it seems unlikely that they would, given that there is not now a federal property tax on any sort of asset whatsoever. One could as easily say that breathing "could be taxable".

Income derived from activities in virtual worlds "could be taxible" in the sense that it is currently a legal requirement that one pay taxes on such income, just like any other income. The only area of speculation is whether the IRS will begin attempting specific enforcement in this area.

P.S. It's spelled "taxable".

Whose tax laws apply?

[Anonymous Coward]

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

OK, so thats a bit of an improbable example.

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

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

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

Sadly, they often end up in government.

Re:Whose tax laws apply?

[Applekid]

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

You mean like fines, paycheck garnishing, jail time?

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

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

Re:Whose tax laws apply?

[SirStiff]

Technically, you should walk down to your provincial financial office and report your purchase. You will then be required to pay tax on that purchase. Most provincial governments don't waste too much time on this. >>Try this on: In Canada, I can buy computer hardware from Alberta - which has no provincial sales tax - and have it shipped free to my house in Ontario - which has some of the highest provincial sales tax in the country - and pay (*drum roll please*) zero provincial sales tax. Likewise, if I live in Alberta and purchase something from Ontario via an online company, it is not necessary to pay Ontario's sales tax. I have heard of people from PEI getting billed for taxes from the provincial government on higher-priced items purchased out-of-province. (I'm not sure how they get the information.. I'm guessing the tax bill was for an item like a car that has to be registered provincially.)

Re:Whose tax laws apply?

[MartinJW]

Also throw in the possiblity that the seller could be a Minor, unemployed or tax exempt for some other reason and you have a hell of a problem. Just put your WoW account in your offsprings name and claim they are exempt!

Re:Whose tax laws apply?

[vertinox]

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

Or you could just play WoW in Somalia over a satellite phone and the only taxes you'll pay is the protection money the local warlord shows up to collect every Sunday.

Since money doesn't change hands over the WoW servers, it would be hard to see how the IRS could enforce this especially when dealing with other countries who may not be friendly. What could you do against North Korean gold farmers working for their government?

Re:Whose tax laws apply?

[El Gigante de Justic]

Well, I don't know about Canadian tax law, but here's how it works in the US.

  I live in Wisconsin which has approximately 5.5% State sales tax (some municipal areas have a small extra tax)
  When I purchase a product online, the company only adds sales tax if they have a physical presence in the state from which I am purchasing; so for example, Amazon.com purchases are not taxed at time of purchase for me since they have no offices or warehouses here, but a purchase from Borders.com or Barnesandnoble.com would be.
  For any purchase which wasn't taxed at time of purchase, I am supposed to pay the 5.5% sales tax along with my state income tax; there's a line for it on the form where I just say how much sales tax I'm paying.

    Now in general, if you miss a few dollars on small purchases they aren't going to come after you, but if the state department of revenue figures out you purchased thousands of dollars of product in this manner to avoid sales tax, they may come after you. I really only worried about it one year where I bought several thousand dollars in computer equipment, because I'd rather pay something up front then get audited later.

Re:Whose tax laws apply?

[tomhudson]

The original poster was correct - the federal gov't (the poster refers to Canada - not US) doesn't have the right under the constitution to force provincial governments to charge any form of sales tax.

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

Won't ever happen in Canada. Where a province doesn't want to participate in a federal program, they can "opt out" and take the cash. http://www2.marianopolis.edu/quebechistory/reading s/opting.htm

Opting out can take two forms:

1. . a province can assume responsibility for financing and administering a program which in the other parts of Canada would be carried out by the federal government; to assure that the contracting-out province or its citizens are not financially penalised, the federal government pays to that province compensating sums of money either directly or through tax abatements; or
2. . a province may receive a fiscal compensation instead of the federal contribution to a program through a conditional grant arrangement.

BTW - this has the force of the Supreme Court behind it. When the feds threatened to do an "end run" around this arrangement, the provinces took them to court, and won.

Re:Whose tax laws apply?

[Applekid]

Wow, how... civilized.

How does one emigrate to Canada, anyway? :)

Re:Whose tax laws apply?

[Anonymous Coward]

In Canada, I can buy computer hardware from Alberta - which has no provincial sales tax - and have it shipped free to my house in Ontario - which has some of the highest provincial sales tax in the country - and pay (*drum roll please*) zero provincial sales tax. Thats not improbable; it's real.

Then that store is not doing its job properly. The tax has to be charged depending on where the item is shipped, not where it comes from.

Selling from Alberta to Alberta = no tax. Selling from Alberta to Ontario = Ontario taxes. Selling from Ontario to Alberta = no taxes.

If (when?) that stores gets caugh (they do have to fill tax reports), they're gonna have a lot of unpaid taxes to pay. Out of their own pockets.

Re:Whose tax laws apply?

[tomhudson]

Thanks ... it is civilized, and, AFAIK, we're the only country that does this (provinces opting out with equivalent financial compensation). Its part of the checks and balances we enjoy.

How does one emigrate to Canada, anyway? :)

Same way you emigrate to any other country - walk across the border, or fly in, or drive across, or come in a boat :-)

Seriously, if you're from the US, just drive across for a visit, then marry a Canadian. Same way Canadians emigrate to the US. (yes, Canada and the US have a "special understanding", in that most of us know someone who has done that, and we don't mind ...). BTW, you don't actually have to marry - just be in a common-law relationship http://www.cic.gc.ca/english/sponsor/faq-spouse.ht ml#Q1, and that can be with someone of either sex.

Seriously - http://www.cic.gc.ca/english/immigrate/index.html

Check out the Provincial nomination link.

However, you can forget it if you've got a criminal record, and that includes any drunk driving. While it might have "just" merited a fine in the US, its always a criminal offense in Canada, not a misdemeanor.

Re:Whose tax laws apply?

[Anonymous Coward]

No corporation has ever sold anything across national borders before?
There are armies of lawyers and politicians that wrangle this out, and distill it into a tax booklet for us.
If you want to be an international businessman, you play by the rules of international business.

Re:Whose tax laws apply?

[tomhudson]

Technically, you should walk down to your provincial financial office and report your purchase. You will then be required to pay tax on that purchase. Most provincial governments don't waste too much time on this.

Technically, you could also then file for a rebate of the sales tax from the province you initially purchased the item from.

For example, if you buy furniture in one province, pay for it there (including sales tax), and have it shipped to your home province, you can pay the sales tax in your home province, and file the proof that you've paid it in your home province with the other province, and get your original sales tax back.

Nobody bothers because most times its not worth the hassle. If a $1,000 purchase is taxed at 8% in one province (Ontario), and 7.5% in another (Quebec), you're going to go through all that for what, 00.5% ($5.00)? On a $200 purchase, that's a whole buck, its not even worth the cost of the 2 stamps (one to your own province, on e to the other one).

They ran a newspaper article about it last year, and one gov't. tax worker said that, while it may be the law, you'd have to have fallen out of a tree and landed on your head to bother. About the only time it makes sense is if you live in a province that has no provincial sales tax (hello, Alberta, Nunavut, Yukon, and Northwest Territories).

Re:Whose tax laws apply?

[Rakishi]

It's very simple really: Do you pay an income tax? If you do then your WoW sales (to RL money that is) are income and are taxed as such. Thats all. Possibly if you're a company doing such sales than whatever sales tax would apply for other purchases would also apply.

Sales tax is NOT income tax, I sincerely hope you realize this. Also why the FUCK does no one RTFA or even other comments, the point is to not tax in-game activities (it even states WHY that doesn't make economical much less practical sense) but to tax them when they get sold (thus converted into income).

I mean in the time you wrote that damn reply you could have read the three paragraphs that make up the article.

Re:Whose tax laws apply?

[Adambomb]

Why is this at all confusing to ANYONE. If you EARN INCOME from a source, you DECLARE IT AND PAY TAXES ON IT in YOUR HOST COUNTRY. Just because people arent thinking to declare their farmed gold income does NOT meant that we need new legislation to remind them.

This is not complicated. This is not a problem. Am I completely insane here?

Re:Whose tax laws apply?

[MeanderingMind]

[2. Immigration - United States] LFG Canadian Border. Need single Canadians.

Re:Whose tax laws apply?

[davper]

Where I live in Massachusetts, USA...

...If you buy goods from another state with no sales tax, you are required to report and pay sales tax to Massachusetts for those purchased goods.

I don't know of anyone who does, however.

Re:Whose tax laws apply?

[tomhudson]

Remember this? http://www.marryanamerican.ca/

Re:Whose tax laws apply?

[BgJonson79]

As your northern neighbor, I can only feel bad for you guys all the time.

Taxation without representation!!!

[physicsboy500]

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

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

Re:waste of time

[Austerity Empowers]

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

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

What are YOU smoking?

[raehl]

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

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

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

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

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

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

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

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

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

Re:What are YOU smoking?

[Wingnut64]

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

Re:What are YOU smoking?

[dave_mcmillen]

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

Just say no to drugs: they make your taxes really complicated!

Re:What are YOU smoking?

[guruevi]

Yeah, but if you're making $1 million selling illegal drugs, and then putting it on US banks, you're f*in stupid. Usually, if you're that deep in the game, you have a shill company you 'work' for, which gives them a 'legal' income (be it foreign or not) for reported living expenses (house/gas/water/...) while you pay cash or with a foreign credit card for the other unreported necessities and luxuries of life.

The judges/IRS cannot convict you for living very, very cheap or getting 'good deals' on cars/houses. Of course if they catch you bringing in >$10,000 at a time with either the card OR hard cash, you'll have problems, but hey, I never had a problem bringing in foreign money (no, I'm not doing anything illegal, it's just that I had 'foreign' income).

Re:What are YOU smoking?

[jackbird]

Not so much. This IRS publication tells you to that "Illegal income, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity." Piece of cake. Just remember to classify your income as "fifth amendment" rather than "drug dealing."

Re:What are YOU smoking?

[Enzo the Baker]

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

Re:What are YOU smoking?

[irix]

Your first problem is that sale of WoW items is not illegal - it's merely against the terms of service contract you have with the service provider, which is NOT the same thing. Income earned in violation of a contract is still income, and you still have to report and pay taxes on it.

It isn't like the account is your property and the ToS prevents you from selling it. The real-world sale of items or your account in WoW is against the ToS because you don't own the account or the items. Blizzard charges you $15 a month for access to the system, but the account and everything possessed by it (items, gold, etc.) are Blizzard's property. When I "sell" something in the WoW auction house I am simply moving around some bits that are wholly owned by Blizzard and I am not profiting in any way.

it seems logical to me that you'd only be liable for taxes on WoW and other virtual items if you actually sold them for real money

That's right - gold selling companies like IGE, regardless of whether they are violating the ToS - should be taxed. But they're being taxed on the cash they receive from the transaction, which is theirs and has real value, regardless of how it was obtained.

Re:What are YOU smoking?

[Anonymous Coward]

You're wrong. Selling virtual items is now illegal, see this link.

The nice thing about articles like this...

[xxxJonBoyxxx]

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

Why are taxes neccessary?

[Anonymous Coward]

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

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

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

Wait wait...

[Anonymous Coward]

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

You're missing an important point..

[zyl0x]

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

"..the taxation of exchanges within the game, such as the exchange of a virtual sword for gold.

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

It's insane!

Re:You're missing an important point..

[Anonymous Coward]

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

From a policy perspective, my view is that drops and purely in-game trades should not bear income tax.

Read the whole fucking article. Or please go back to Digg with the rest of the brain-damaged children.

Re:You're missing an important point..

[Firethorn]

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

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

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

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

Still, some scary stuff.

Re:You're missing an important point..

[east coast]

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

Re:You're missing an important point..

[aztektum]

You quoted a line that was essentially part of a summary of her article. Later she says such exchanges SHOULD NOT be taxed and goes into explaining why.

Re:You're missing an important point..

[Automatonamaton]

You ask us to read this statement carefully, when you completely ignore the statement that follows

From a policy perspective, my view is that drops and purely in-game trades should not bear income tax. Everyone here seems to be thinking that she's only talking about taxing real profits from virtual sales because well, she is.

For these reasons and others, I argue that players of games like WoW should be taxed if and when they cash out--that is, on real market trades.

Re:You're missing an important point..

[gad_zuki!]

Sure, why not? Well, lets just say its doable. Just like sales tax, the onus should be on Blizzard to take care of things. If such a law was passed or current law was interpreted to extract tax like this the implementation should be blizzard taking 5% (or whatever) of the cut, calculating what the exchange rate for WoW gold is to american dollars, and paying the IRS en masse.

Something tells me there will be no shortage of experts who say WoW gold is worth .001 pennies (think how little valued coupons are) and this whole thing isnt worth doing.

IMHO, not only is this not really worth doing. The IRS would have better luck extracting money once it leaves the game, like when people sell characters or equipment. My only real concern is when the game developer is literally selling money to people like in Second Life. I think those guys are a lot more liable for taxation than your typical MMORPG player. Linden is pretty much selling them currency and taking money up front for it, instead of selling a subscription to a game where one can generate "money." Linden's money is much more real and should probably be taxed because the tokens they use for money are a direct conversion from real money. They even do a reverse conversion and pay out dollars. Whether or not this is worth enforcing is another question, but I wouldnt assume taxation for virtual money is out of the question.

Re:You're missing an important point..

[Anonymous Coward]

Pay up 10% or your character goes to jail.

Re:You're missing an important point..

[mopower70]

And to which account do I send the virtual gold I'm paying with? This is ludicrous, of course, but if it's true, then we'll all be filing refunds for repair bills, pots, training, and weapon and armor upgrades that we needed to get that drop.

Re:You're missing an important point..

[noidentity]

But I already pay my virtual taxes to the virtual WOW government on every transaction! They'll have a problem with these "real world" governments trying to horn in on their taxation.

Re:You're missing an important point..

[Gropo]

It's insane!

I'm sorry, do you think the streets of Stormwind and Orgrimmar sweep themselves (Silvermoon notwithstanding)? Who pays the battlemaster's salaries? Funds the orphanages? Disability pay for all those poor soldiers streaming in to the Stair of Destiny?

That said, uh.. Last I checked there was a sort of 'taxation' levied against auction house sales in the form of listings deposits.

MMO = Real World

[Wingnut64]

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

Re:MMO = Real World

[alexgieg]

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

Damn, I hate grinding.

Re:MMO = Real World

[Wingnut64]

Good thing we all have Diplomacy.

My thoughts

[dmsuperman]

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

Farming

[howman]

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

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

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

Re:Farming

[brkello]

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

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

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

Re:Farming

[Sancho]

Does that mean that if I raise potatoes, and I trade a thousand potatoes for a TV, that I don't have to pay taxes on anything involving this transaction?

Educated opinion on the matter

[Anonymous Coward]

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

Hack account == tax loss

[RichMan]

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

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

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

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

Re:Hack account == tax loss

[leuk_he]

My time investment becomes unrealized gains as I have not made a real world transaction.
That is a tax deductable?

I agree, not enough taxes.

[PixieDust]

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

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

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

tax credits

[Anonymous Coward]

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

cheers!

Hell, they have someone is wow trading sex.

[Shivetya]

http://epicslut.ytmnd.com/

(warning horridly loud attached music on that site)

Real World Penalities...

[__aaclcg7560]

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

There has to be an upside

[sorrydaijin]

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

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

More complicated than even she implies...

[coolmoose25]

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

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

Finally!

[Anonymous Coward]

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

Treat it like gambling

[insomniac8400]

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

Re:Treat it like gambling

[Sancho]

I am not a lawyer, and this is not tax advice

Actually, you have to declare any net gain (though for large sums, there may be special rules that I'm not aware of). That is, if you win $1000, but you gambled away $2000, you can actually deduct $1000 as a gambling loss. If you gamble $1000 on Red (roulette) and win $2000, you only have to declare $1000 because you only actually net $1000.

I am not a lawyer, and this is not tax advice

Re:Treat it like gambling

[mab]

Maybe in the US but here is Australia we don't pay tax on winnings or prizes. gota love Aus.

Inventory treated as income

[michaelmalak]

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

What happens in Second Life stays in SL unless...

[Glasswire]

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

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

Bwahahaha

[Leroy Brown]

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

Value vs. Income

[Kelz]

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

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

Context...

[MeanderingMind]

...why do we spurn it so?

From the Article (Context in bold):

I discuss two of the issues: the taxation of loot "drops" and the taxation of exchanges within the game, such as the exchange of a virtual sword for gold. From a policy perspective, my view is that drops and purely in-game trades should not bear income tax.

Most people should have been able to pick up from the omitted opener to that sentence that she was discussing those two issues. Discussion is not the same as supporting a given subject.

If you were tired or drunk you might have missed that, so we have the very next sentence to let us know she's not an idiot. She very clearly, in other sections as well, states that she believes attempting to tax transactions that are purely in-game is unreasonable.

Unless you're playing WoW to make money, I don't know why so many people seem to be out to get this woman when she's basically defending us in our desire to play WoW-like MMORPGs without having to fill out a 13-37A Tax Form for our gains.

Under the table.

[The Living Fractal]

WoW gold sales are so clandestine (to hide from Blizzard so the accounts don't get banned) that I think trying to effectively track these transactions will be futile and possibly cost just as much as the taxes would bring in, if not MORE. For games like WoW that are against this type of activity there is simply no workable tax model. So, to Govt.: Step off. This baby is under the table.

TLF

P.S. This doesn't even begin to address the fact that the majority of gold sales happen from overseas providers. If this is truly business, then they already have the advantage over any USA counterparts. Is that what we want?

I'm glad that this is being looked at....

[ip_freely_2000]

...because if they have time to spend on this, then every other legal problem on Earth has already been solved.

Re:I'm glad that this is being looked at....

[sherriw]

amen (mod parent up).

Pointless to even discuss it

[AdebisiTheGamer]

This is actually a good thing!!! READ ON I PROMISE I WILL PROVE IT!

Currently you are required to pay tax on all real world income in just about any country I can think of. I bet, whether you live in Canada, America, England, that the existing tax laws require you report and pay taxes on any profit derived from commercial activity. I would imagine that investing time into a game in order to create and sell inventory is already just as taxable in most countries as weaving baskets in order to sell them for profit. Like weaving baskets, some people do it for fun and do not attempt to make a profit. But the basket weavers who do sell for profit are already required to pay income tax. Why would anyone think it would be any different for real money sales in Warcraft?

People are also failing to realise the benefit of this. I *HOPE* the government starts enforcing income tax or business tax on companies or people that sell for real world money. Why? Simple, it means I can spend a few bucks, register myself as a business, write off my computer, my WOW account fees, and then report a loss because I am unable to get sales for real world cash, and thereby offset my real world tax bills derived from my full time job. If people actually understood tax law, they would see this move could actually benefit them. By declaring World of Warcraft a business activity, it becomes legal and ethical to write off all our world of warcraft expenses, including computer purchases, internet provider fees, game fees, etc...

Bring it on. I am ready with my deduction forms!

Re:Pointless to even discuss it

[Dale512]

This would also be considered a Hobby business. Your losses would be limited to any hobby income you have. You wouldn't be able to take the loss to cover your real income. Hobby-business laws are in place to cover this exact thing. The bright side would be that you are pretty much certain to have enough expenses to negate any income you might manage.

VISAbucks

[Anonymous Coward]

Blizzard bans gold sales in its Terms of Service (partially to help avoid this kind of issue) so Ill use Second Life as the example of the concern. Linden labs itself will exchange lindens for US cash.

The issue is not one in which I go create some must have item for second life - sell it - then convert that to real money. The issue is what happens when money stays in Second Life - but is used to purchase in real world items. To use an example - say I run a business selling clothes in second life - and I have employees who help me create and sell second life clothes. We then sell those clothes in game, earning lindens. However I pay my employees for their time (time is a "real" resource) *in lindens*. I have not paid them in US cash. Thus even if the lindens were to be immediately exchanged for US cash we did not the various taxes on "real" income such as social security. Take the example a little farther - now not only do I pay them in lindens - they pay other retailers in second life for out of game items - say real clothes - in lindens. Out of game no money changes hands - there is nothing to tax. Carried to its logical extreme all monetary transactions could be handled by linden labs - all tax free. Its also backward compatible - if you want to buy something which does not accept lindens you simply get your lindens exchanged for dollars.

This is not a scenario that government in general is prepared to handle. Unfortunately for them there is no technical reason why something like this could not be done. Even if its not a game currency whats to stop say ... VISA from offering their own internal "money" - exchangeable for "real" money on demand? Furthermore the prospect of eliminating some, or possibly all, taxes means that people get real immediate value. There is little to no legislation having to do with how to handle a scenario like this - thus if and when such a thing starts happening expect a lot of panicked government officials scrambling to adapt to the removal of their primary source of revenue.

Re:VISAbucks

[Anonymous Coward]

This is just bartering. The IRS already requires you to report "the fair market value of goods and services exchanged"
http://www.irs.gov/taxtopics/tc420.html

Having self-employment income also requires you to pay payroll taxes (social security, medicare, etc).

Re:VISAbucks

[coolmoose25]

That is the whole point of this discussion. If the activity in a game nets you real world money in the end, and that is used as a basis for putting the "game" under tax authority control, you are already screwed from a tax perspective... each of the transactions you describe could just as easily be described as "non-cash" or "barter" transactions... IRS law already contemplates this... so if you go to the store and you say to the shop keeper, "I have these rabbits I've raised, I'll trade them to you for two sacks of potatos, and he agrees, and the transaction takes place, you BOTH have to report the trade as "income" on your tax returns... even though no US dollars were exchanged, a transaction has taken place, and you both have to include the value of that transaction... Obviously, you both can net that income against the costs you had to either raise your rabbits or grow/purchase the potatos...

Re:VISAbucks

[OKCfunky]

Look at gold, your idea has been around for ages. And your still on the hook for taxes, because taxes are in response to where your citizenship lies. Start dodging the tax man, and they come after you hard. There is 0 leniency, and here stateside, because it's a jury of peers; your really fucked because no one likes someone dodging taxes that they all have to pay as well.

Your analogy isn't perfect

[Anonymous Coward]

The US has agreements [treaties?] with many countries where you don't have to pay US income tax during your stay if you pay local taxes.

I'd imagine the level the IRS cares is directly related to the amount of taxes that because of SL or WoW they are not recieving. I highly doubt there are more than 15 players [in the US] of either that would [if following current tax laws on income] owe more than $500US in taxes. [as this is slashdot, and I'm posting AC, I have little or no basis for the previous statement]

Second Lifers Protested Once, They'll Do It Again

[Nonsanity]

Since the members of Second Life already protested about a virtual tax in the past, slapping an extra real-world tax on top of what they are already required to report as income would be sure to cause an uproar.

While the "Linden Dollar" has a market value in the real world, as long as it isn't being bought or sold, just bartered inside the virtual world, there is no sale to be taxed. It's the world "dollar" in "Linden Dollar" that might twist people's attention. If it was "bottlecaps" or "Flanian pobble beads" it's true barter nature might be more obvious.

Earning value

[WPIDalamar]

Earning real money for selling in-game stuff. Taxable. Generally everyone agrees.

Devil's advocate time...

a) Real money is taxable.
b) You can sell virtual gold for real money.
c) Virtual gold therefore has value.
d) Receiving something of value is taxable as income. Example, if you win a car worth $20k, you have to pay income tax on that $20k. Or if you win a trip to outer space worth $200k, you have to pay taxes on that $200k.
e) Therefore, receiving gold in game is taxable.

For second life, it's almost obvious. Since you can transfer dollars to lindens easily and legally those lindens obviously have value.
For WoW, it's not as obvious, but the same argument holds.

Luckily... if I earn 2000 gold in WoW, then spend that 2000 gold on repairs, consumables, gear, etc, I should be able to write the value of that gold off making it a wash. (2000 gold earned, but 2000 gold spent) Or even better, if I start the year at 2000 gold, and end the year at 500 gold, can I claim a loss?

Re:Earning value

[Anonymous Coward]

but by your own agrument, the in-game tax would be the same...
"if you win a car worth $20k, you have to pay income tax on that $20k"
whether you have 2000 gold or 2000 gold worth of stuff, the tax-base is the same...
If I win $5000 off of some scrath-off and buy $5000 worth of stuff, I don't get to write-off the $5000
You pay tax on the money you earn-what you do with it is not the governemnts concern (assuming legal activites :) )

Re:Earning value

[Jonny do good]

Luckily... if I earn 2000 gold in WoW, then spend that 2000 gold on repairs, consumables, gear, etc, I should be able to write the value of that gold off making it a wash. (2000 gold earned, but 2000 gold spent) Or even better, if I start the year at 2000 gold, and end the year at 500 gold, can I claim a loss?

It depends on your in-game expenses. If you buy virtual "luxury items" that don't qualify under the IRS tax code for a deduction then you shouldn't be able to deduct them. In the real world businesses can't deduct all expenditures either. Buying a car isn't tax deductible immediately, a depreciation schedule applies so similar rule should apply here. The IRS would have to determine what those virtual "luxury items" are, and set depreciation schdules for different items, but in continuing with your logical approach to taxing in-game activities the same rules should apply that do in the real world.

Re:Earning value

[mab]

>Example, if you win a car worth $20k, you have to pay income tax on that $20k. Or if you win a >trip to outer space worth $200k, you have to pay taxes on that $200k.

Just a note, not all countries require tax to be paid on winnings, We don't here in Australia.

The IRS has missed a real opportunity

[Anonymous Coward]

The IRS has missed a real opportunity, taxing the monopoly money that changes hands when players play monopoly. Also, the capital impovements the players make, building houses, hotels, buying utilities. These are all "real" property that need to have taxes levied against them. "real" just like she said, where you tax the "real" gold and transactions occuring inside WOW.

The problem is now politicians hear the word money, and immediately think, taxes. Even if the money only exists notionally, in the minds of the players.

Re:The IRS has missed a real opportunity

[Flwyd]

If you don't pay your taxes, they'll cut off your fingers. After you take off the thimble, natch.

Double standard bullshit.

[dafragsta]

Until the revenue lost to various online activities is more than the money misappropriated to pork barrel projects, frivolous spending, and otherwise bad accounting, I think the government should learn to spend what they are given more responsibly and leave internet and commerce in general, the fsck alone.

Untapped markets

[Clever7Devil]

Taxing people on real dollars earned is nothing new. It doesn't matter how the money is earned. According to US law, anyone who "ebaY's" their WoW wealth owes taxes on the money received. If you try to cross the line between real and virtual "value", you open up a Pandora's box that would be hard to close.

First of all, Blizzard would be in court the day any such ruling came down.
Second of all, if you legitimize the transfer of access to virtual property by assigning it real world value, you open it up to all the issues our money faces today.

Would you need some sort of FDIC-type entity to protect the guild bank? Guild leader gets keylogged, don't worry, your Epics are insured.

Repair bill insurance? Arguably your character is your main tool for earning. If he dies or takes damage while performing his function, the repair bills begin to stack up. Since insuring this guaranteed expense is unfeasible, can we write it off? What about the other built-in money-sinks? Arguably my epic mount is a sound investment towards future earnings. It will allow me to grind and gather more efficiently. Can I write off this 5200g expense? Can I write it off even if I've never sold virtual goods for real currency?

Credit? If I take out a loan from a guildie, and then I stall on paying him back, can he report me to a real world collector? Will it affect my credit score? I'm sorry sir, we regret to inform you that we cannot finance your home at this time. Apparently you have a large outstanding debt with xlegolasx. Would this spawn lenders and credit-issuers in game? "Mastercard, accepted at Auction Houses everywhere. Yes, even Gadgetzan."

I'm just saying. Tax people if they earn money from anything. That's fair, it's the law. But taxing people who don't have any intention on making money from their hobby would cause more problems than it's worth.

Re: My 2 Cents

[HeyMe]

You should not be taxed for "transactions" that occur within the confines of a virtural environment. That is, if I rack up millions of Lindens in "Second Life" (or piles of goodies in WoW), those "assets" would not be taxable.

If, on the other hand, I sold or traded or sold those virtural assets for tangaible (real world) goods or cash, that transaction or gain could be taxable, depending on your particular tax laws.

Taxing my SOJ's?

[Anonymous Coward]

I think that people are getting hung up on the word "gold". I would like to see how the IRS is going write up the tax rate I were to sell a Windforce for 20 soj's? It's just easy to relate "gold" to a money value. In game, its meaningless!

what the heck!

[izzyllamas]

I finally got my tier 15 and now I have to pay taxes for it? My moms gonna be pissed.

Much more complicated than that

[SpeedyDX]

I wouldn't put it that bluntly. Although I would tend to agree, there are some complications.

I believe that personal transactions between people should not be taxed. If I hold a garage sale to sell off my used clothes/books/toys, I don't think the CRA (Canadian IRS) will come knocking on my door if I don't report that on my tax forms. In fact, I pretty sure we don't even have to report garage sale income. Likewise, if I make a rare sale of my virtual junk, $10 for a purp [Destiny], for example (excuse me for using old examples, I haven't played the WoW for a while), or even selling my account because I don't want to play anymore, I shouldn't have to pay taxes.

However, it is when you make a business out of it that it gets messy. It's one thing for someone to sell his old vinyl collection and garage sales once or twice a year, but it's something else entirely when his "garage sale" is going on once or twice a week, and he constantly replenishes his "collection". At that point, it becomes a business, and the CRA/IRS might have a bit of a problem with that. Similarly, when selling a purple drop occasionally turns to regularly selling gold, DKP, or other services/items for real world cash, it becomes a business and not just simple personal transactions.

Then you run into the question of who collects the tax, and how taxes are administered. The "US" version of WoW is actually the North American version. Do Canadians pay American tax because we play on American servers? Or are people taxed in their state/province of residence? Does it matter who the buyer is and where they live? Can the seller write off their WoW subscription, related hardware purchases, or other "business" expenses (Cheetos and Bawls)? Where do you draw the line between personal transactions and commercial transactions? How about businesses based in foreign countries (a la stereotypical Chinese farmer)?

Of course, there's the other complication that you're actually NOT ALLOWED to do this according to the Blizzard EULA. If Blizzard decides to change the EULA to legally allow transactions, how will THEY profit from it (if you think Blizzard isn't going to pounce at the opportunity to make some extra cash, you're being pretty naive)? There are too many factors to consider. I don't think the market is big enough right now for any government intervention. Sure, there may be several hundred thousand changing hands each year, but that's far from being a major market. Chasing after people for taxes might be more trouble than it's worth.

So after saying all of that, it is probably all moot. I don't think anything will happen in the foreseeable future, simply because the scope of the market is so small right now. Not only that, but the effective lifetime of each MMO is pretty short in the grand scheme of things.

What's Next.

[Egdiroh]

Is her next paper going to be on how earnings from the game monopoly are taxable?

Estate Tax/Inheritance Tax?

[giafly]

• The estate tax in the United States is a tax imposed on the transfer of the "taxable estate" of a deceased person - Estate Tax
• In the United Kingdom, Death Duty was first introduced as a tax on estates in England and Wales over a certain value from 1796 - Inheritance Tax

We need to hunt down these scofflaws who think they can die in WOW and get away without paying tax!
Also if WOW gold has real value, given that killing a creep is basically a wager on what it will drop, the game could be just as illegal as online poker

can I marry my virtual girlfriend and file jointly

[Anonymous Coward]

we will have an elf ceremony in the World of Warcraft.

No

[Sycraft-fu]

No more than you can write off time spent writing OSS software, scrap-booking or any other hobby. You are again trying to make things more complex than it is. The activity isn't for profit, and thus isn't subject to tax or write offs. If you make it for profit, by selling things, then you owe taxes. If that is the case and you have a business, you could potentially write things related to that. However for normal use no.

This is not the first time that there has been a recreational activity that some choose to make money on, and the IRS already knows how to deal with it. Not complicated.

Re:No

[CastrTroy]

If you sell your OSS, (ala Redhat, MySQL) then you sure can write off the time you spent writing the software. If you provide a service to others to create scrapbooks from photos they gave you, or if you sold the scrapbooks you made (even with your own content) for money, then you should be able to count the time you spent making the scrap book. Could you not claim the time you spent writing a novel against income made by selling the novel? If you are making money off something, then it is a business. If your selling in-game items for real world money, then the activity is indeed for a profit, and I don't think that a lot of people would sit around letting the government charge taxes on the sales if they couldn't claim all the deductions as any other business could. If doesn't matter if you're selling corn, bicycles, mp3 downloads, or virtual swords in world of warcraft.

Re:No

[DerangedAlchemist]

Could you not claim the time you spent writing a novel against income made by selling the novel? If you are making money off something, then it is a business. How could you write off your time? You don't have an hourly pay rate, you get paid per book sold. Now the word-processor, writing desk & chair, etc. might be write offs.

Can I write that off?

[Anonymous Coward]

I spent well over 100g on repairs and consumables for a three-hour wipefest in Karazhan last night, for no loot and minimal DKP. Would that entitle me to a tax credit of some kind?

Virtual activity

[Anonymous Coward]

Virtual Transactions should only equal virtual dollars.

Here you Go Govt. have your Warcraftbucks.

umm the IRS

[way2trivial]

Not defending the original post, but I would like to point out the
MAJOR FREAKING FLAW in your argument.

The ITS (*professionals*) would disagree with you somewhat...

the IRS publication 525 which defines income
lists sections for
BRIBES, page 28
Kickbacks, page 31
and illegal income page 31, requiring you to pay income tax on such activites

"Illegal income. Illegal income, such as money
from dealing illegal drugs, must be included in
your income on Form 1040, line 21, or on
Schedule C or Schedule C-EZ (Form 1040) if
your self-employment activity."

So, who doesn't know SHIT about what they are talking about?

DUPE

[facerip]

I wish I could dupe IRL. I would have enough to pay the IRS then.

The IRS doesn't care

[Sycraft-fu]

You are required to report all income, legal or not. That is what they busted Al Capone on in the end, tax evasion. He argued that since the source of the income was illegal, he needn't pay tax. The court disagreed and he went to jail for it. While the probability of them noticing small time operators is small, if you make a business doing it and make lots of money, you are likely to get caught.

It's not your property, so it's not your tax

[whoda]

Well, maybe in Second life it is, but in almost every other game out there, the companies tell you and remind you again and again that all property in the game is THEIRS, not YOURS.

So WoW fees are a tax right off?

[BloodSprite]

So WoW fees are a tax right off and can be claimed as a business expense?

Re:So WoW fees are a tax right off?

[raehl]

Only if you play WoW as a business activity.

yrah

[Anonymous Coward]

I proofread, adjusted, then posted without reproofing.. ITS above should be IRS

What the hell??

[Anonymous Coward]

So the woman is basically saying that in game purchases should be taxed. Yah....OK...You go do that now...I don't play WOW so it doesn't make any difference to me. Pretty stupid though if you ask me.

Its simple really

[jonwil]

Basically, any time real world money is exchanged for a virtual good (be that an axe in WoW, a ship upgrade in or some L$ in Second Life, it should be taxed just like any physical good or service.

Although games like Second Life where there is a clear currency and a clear officially supported way to convert real world money into L$ and back again muddy the waters (the question then becomes is L$ any different from £, , ¥ or other currencies...)

Very simple solution

[Talchas]

Just tax the sale of the gold/items/whatever for real dollars. If you don't spend real money, the gov doesn't tax it, if you do, you do get taxed. Very simple, and it then only affects the people it should - the people making real money off this sort of thing.

Write off of expenses...

[BigGar']

If you can be taxed on it you can write off the costs of making that money: for example: monthly cost of the game account(s)& possibly the value (or part there of) of the computer(s) used can be depreciated or written off as well. Heck you could even write off the floor space you use for your "small business" that you're running out of your house. Travel expenses related to the business, advertising, need a special piece of software to ease the job of leveling a character and it costs $1000, write it off. Talk to an accountant about all the things a small business can write off. A little planning & meticulous record keeping will go a long way to reducing / eliminating the tax burden.

God, please give me the wisdom...

[geekmux]

...to create some online virtual world/product/gotta-have-it for the teeny-bopper/loser masses to pay per click/text message/phone call so that I may too sit back and retire properly floating on the sea of mass stupidty in my $15M yacht. For FUCKS SAKE, turn the computer off and rediscover that thing outside your window called the REAL WORLD. Coming from an IT geek who reads /. on a regular basis, this should tell you something. And to think there are those who still believe that American Idol is actually about finding the next best singer, and has "nothing" to do with $15M+ in revenues from text "voting"...Whatever.

Taxes and RPGs

[Ian McBeth]

If people are making real world cash playing an mmorpg, then yes they should pay taxes on that income.
However, where no real world cash is involved the government has no business even contemplating taxing people.

I play the old school Ultima Online, I am not going to pay taxes on virtual items, that I don't own (all in game items belong to EA, they just let us use them for a monthly fee).

Now If I was selling that stuff on a website, for U.S. Dollars, then yea, I pay Tax, but otherwise, Uncle Sam, Kiss me hairy arse.

A pretty interesting point

[nicolasmendo]

This is a quote from one of the comments to the article:

"So in the WOW case, if I sell one item in the real world I need to claim that as income. Can I then claim all the money I have spent on the WOW game, subscription costs, and other offline purchases as items as business expenses? Can I now claim home office expenses? Cable modem fees?"

Hits the spot, in my opinion.

This is hard

[manekineko2]

This is not hard for you because you have a grossly incorrect view of the income tax. You get taxed on any income, not just monetary. I'm a dentist and you're a lawyer. You agree to write a will for me in exchange for me cleaning your teeth. Boom, income tax on both of you for the fair market value of the services. And it has to be this way if you don't want to return the economy to the Stone Ages and the barter system.

It does make sense to tax items in game, it just is that we haven't reached that point yet. Spend hundreds of hours in WoW getting gold to spend on things in game? Is using that gold to buy a Sword of 1000 Truths really different from using that gold to buy a piece of software which is equally "virtual"? If you setup a shop in game selling software for gold, should you be exempted from income tax just because you're receiving gold (a cash equivalent) instead of cash?

Deferring taxation until the gold is sold for dollars is equally problematic. There are a huge number of tax shelters out there that exist simply for deferring taxation - time equals money. That money could be sitting in an investment earning dividends for you rather than going immediately to the IRS. The entire benefit of a traditional IRA is that you aren't taxed on the money until you take it out. Under the scheme espoused by a lot of /.ers, where you don't tax until gold is converted to dollars, suddenly anyone can make their own IRA without the IRS' help or permission.

None of the US virtual economies are stable enough that people are using them to tax shelter, but that is a very short-sighted criticism. A number of Asian "virtual" currencies can now be used to directly exchange for goods and services outside of any game context.

No Taxation without Representation

[Anonymous Coward]

If my WoW character(s) can be taxed then they should be allowed to vote. 'Tis only fair.

Do not pass Go

[Anonymous Coward]

Taxing virtual property exchanges is the most retarded thing I've ever heard. Ignoring for the moment the fact that all in-game items and gold are, per the ToS, property of Blizzard (if they are to be thought of as property at all) and not of the player, the very idea that only virtual currency is changing hands leads us to believe that it should be taxed by that same virtual currency. But taxed by whom? The government? What the hell would they do, have the IRS make a character on every server and go around collecting money from characters? I don't know about you, but I'm fairly certain that that's the most ridiculous thing I've ever heard. That character would just get ganked all day anyway. And what would the IRS do with all that WoW money? Sell it for real world money and get their own characters banned? Oh ho ho.

If I pass Go in Monopoly and get $200, should the IRS take $20 of my Monopoly money away from me?

Re:Do not pass Go

[DragonTHC]

they're referring to the selling of in-game resources on something like ebay.
as well, you can trade linden dollars for US dollars. the exchange rate is exceptionally low, but given enough time and effort, a person could make real money.

Blizzard and WoW

[SARSpatient]

Blizzard got out in front of this one by (1) Making gold-buying against their rules and (2) In their EULA stating "Game experience may change during play". In other words... you as a player, do not own your character. You do not own the gold in your backpack, and most certainly do not own that purple mace of +100 virginity that dropped for you in Kaz last week. They are all the property of Blizzard/Vivendi and for a small rental fee you can sit at their controls month after month.

Taxes Inconcievable!

[grilled-cheese]

I really don't think that government can effectively tax virtual money. Remember that these games are not just in the USA, but in almost every country in the world. I don't believe that the US gov't can really tell a 14 year old Chinese student to pay them money because he spent 50 yen on WoW gold. Assume that the US does figure out a way to tax the US based online purchase shops for items. All this will do is force people to use the one country that doesn't enforce the same tax program as the USA. I don't disagree with the principles of the article. The transfer of real money to virtual money is an untapped tax revenue. I just don't think it can be done as it is a unanimous international decision. I'm more interested in seeing how effectively one can launder money (all mob style) through virtual currency trading. Sorry Mr. Taxman, go farm your gold somewhere else.

Wow.... (pun intended)

[absurdparadox]

Its amazing how many people seem to be pro-taxes. For those of you who don't know, there are large debates on even the legality of the Federal Income Tax.

Have you all ever considered that if we drastically shrank the size of the federal government, taxes would plummet? I think the largest problem we have in our country is the inability to define problems. The real reasons illegal immigration is a problem are social welfare and minimum wage, for example. (No, national security is not a valid reason... hell the 9/11 terrorists were here legally! I'm sorry, but the government cannot protect you.)

If I worked for someone, and they took 100% of my money, that would make me a slave. Most Americans are taxed somewhere in the 40% area (after sales, property, income, etc). Does that make you 40% a slave?

I seriously think a lot of you need to take a long hard look ad your thought processes, if you really think we need to be taxed more. The logic that "income should be taxed" is complete brainwashing.

Religion tax exemption?

[a1goddard]

I am a WOW Priest so i am tax exempt correct?

Like capital gains or online gambling

[Pork-Chopper]

It makes the most sense to borrow from the capital gains model. You can perform as many transactions as you would like in the virtual world, but as soon as they are converted back to real money, the net gain should be taxable. This avoids the problems associated with differentiating between people playing the game and people working in the game environemnt. Furthermore losses in a virtual world should be deductible against gains made in a virtual world. If you have made a lot of money in the game, you can keep that asset inside the game world and improve your character etc, just as you can keep playing in a casino, and only have to declare your 'winnings'. When you extract your asset from the game environement (like selling a stock), you should be required to pay capital gains on that asset.

Deductions...

[Firethorn]

IANAA*, but my parents are. Believe it or not, yes, you could deduct all those things. Uncle Sam's going to want receipts, of course, but billing records suffice.

As long as it's used in your money making efforts and the applicable taxes are paid, you're good.

Developing the SL object - cash expenses you're good for, but not your own labor. Hire an artist to create some of the overlay? Deductable. Do it yourself - not, but the cost of your editing software might be.

*I am not an accountant

Re:Deductions...

[Jonny do good]

I am an accountant and you are correct. There are a few issues here though. One is showing intent to turn a profit. This will allow expenses to be used as business deductions.

Alternatively it can be looked at as an investment. As an investment active/pasive rules would apply hence losses can only be set against like category gains. Another problem here is determining the costs basis for the virtual items sold which could be very complex to determine but it possible. It comes down to determining the portion of you stake in the game that was sold and your "investment" in the game. If you want to try to deduct your cost basis maticulous record keeping is the key, both as "investments" are made and the % of your stake in the "investment" sold at the time of sale.

huh!?

[danielk1982]

Why the heck do you need a separate clause for "online-worlds". The current tax-code seems to handle online property pretty well. If I find a l337 battle axe in Diablo 2 and sell it on ebay thats income that by-law I have to declare (so that it can be taxed). Same with Second Life and WoW. All real-monteray transaction already need to be declared.

Where is the problem?

Re:huh!?

[ubuwalker31]

You have identified the flaw in the logic of most of the /. posters today: They don't understand how the income tax system works. In general, gross income is income from any source derived. So, what exactly is income? According to the IRS, income is an accession to wealth and is taxable as gross income only if it results from a realization event. Realization occurs when "complete dominion" is asserted over the property. Taxing unrealized appreciation would cause too many administrative problems and people may lack the money to pay the tax. This is primarily a timing question.

So, if you buy a "Vorpal Sword +5" for $1 on Ebay and then sell it a year later on Ebay for $100, you will get taxed for $99 when you sell it...not while you are using it during the game.

Get it? To see if you understand the concept, answer these two question:
1) You find a diamond ring on the beach in real life. Is the value of the ring gross income?
2) You buy a a stock at $1 a share,and it rises to $20 a share. Is the $19 taxable?
(Answers: 1) yes, u exercise complete dominion over it 2) no, you haven't sold it yet)
Bonus: You find a copy of the declaration of independence in the back of a painting. Is the value of the document gross income? Why? How much tax will you have to pay if you sell it for $1 million if you bought the painting for a dollar?

Short answer

[prelelat]

Its stupid, its not even real, if someone is stupid enough to pay for an imaginary object the power to them.

The long answer would be, if this were to work in any way I think that they would have to impose a tax on items in game and not tax people in the real world. Really if you use what ever currency to buy an object in the game if you tax that currency and put it into a fund then you could use that fund to pay the game tax like in real life. But unless this is just for fun I think its stupid.

What would the gov do with Lindens

[tbcpp]

"but I would argue that Lindens are worthless until there is an interface with a non-virtual good, service, or money, and that's the point at which tax could be assessed."

And if not, then it can't be be taxed anyway right? Because what would the government to with Lindens anyway?

Tax the provider for inventory.

[harl]

Take this to the next logical step. If these things have value then the game provider is sitting on huge capital assests and/or inventory that the IRS needs to look at.

The end user license agreement is quite clear that nothing in these games is owned by the players. They are simply renting access to them. These bits on a disk have real world value. Thus the game provider is holding huge capital assests. Are they treated as inventory for tax purposes? Can they be depreciated? On what schedule?

Take it one more step.
Then what about the list of subscriber info? Those are just bits on a disk but if you've already set the precedent above then these have to be treated the same way. Then any stored data anywhere becomes of interest to the IRS.

The end consequences of this are staggering.

Zimbabwe might want to have a word with you...

[Firethorn]

Black market money exchange thrives in Zimbabwe, where soda costs $40 at official rate

Just happened to be a fark link today, but it's relevent in this post. Zimbabwe might have pegged their money at $250 ZD to $1 USD, but due to economic realities it's closer to $20k to $1 on the black market.

Just because something's illegal doesn't mean that it doesn't have value. Indeed, in the case of drugs, it frequently increases their value.

You could make a good case for the companies that sell WoW gold to pay the normal taxes of a commercial organisation, however i strongly suspect most of them are outside US jurisdiction.

And there's the rub. Americans play WoW for entertainment, not profit. Even those that sell probably don't make enough to cover their expenses(Key, subscription, ISP fees) and make even minimum wage.

MOD PARENT DOWN

[BenEnglishAtHome]

Gross factual errors get modded to +5?

(Note that a U.S.-centric view is presented henceforth.)

Income is taxed when earned. Income includes not just dollars but anything of value, including in-game items. If the IRS were going to be consistent, in-game earnings would already be forcing gamers to file horrendously complex returns and pay lots more taxes. It hasn't happened yet simply because it's a terrific pain in the ass and it's not yet a big enough revenue-loser to inspire the IRS to jump in (or inspire Congress to force the IRS to jump in).

If it was written for a U.S. audience, the post above is nonsense, through and through. YMMV in other countries. Please mod it down to the basement where it belongs.

I already paid my tax....

[necro2607]

Hello, I already paid my tax on any/all of my World of Warcraft gameplay when I bought the game from the store and paid both Provincial and Goods & Services Tax, thank you very much. Jeez.

Profit & Loss??? Re:What's the story here?

[Anonymous Coward]

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

That raises the question: What about losses? Or potential losses or "virtual losses". I could have sold my virtual items but I have now lost them in a raid or whatever. Or even "fair market value". I sold my items for less that I paid for.

Can I write these off as well?

If you win $1,000 in Vegas but can prove you lost $1,000 previously, no taxes will be paid.

Surely if you can tax profits, you can write off losses as well. Not as simple as you think.

Re:Profit & Loss??? Re:What's the story here?

[east coast]

It is as simple. 1000 USD is worth 1000 USD no matter where in the world you are. Some uberloot has an assessable value and you'd probably have to show that you had a buyer willing to pay for it at such a cost or it would be worthless.

To put it another, more tangible, way: If I paint a painting and my house burns to the ground I probably won't make anything back in the way of insurance aside from (maybe) the cost of materials. But if I have a buyer who is willing to pay 1000 USD for the painting and it is destroyed in transit I have a real value associated with it. If my assessed Picasso is worth 10000 USD and my house burns I'd have a leg to stand on.

Also, the raid is a question of taking risks. If I engage in dangerous activity and destroy my Picasso because of this activity insurance is less likely to pay and I highly doubt I can write it off as a catastrophic loss.

The only thing I would find not to be simple is if Blizzard, Sony or whomever lost your data. While it's against their EULA to sell their virtual goods for real cash would you still be able to point at a gold seller online and say "Hey, I just lost 1000 plat, www.eq2gold.com said it was worth 250 USD". Somehow I think compensation at that point would be a bit harder.

Why is this even news?

[jkiol]

There is a place on your tax forms for this already... "Income from other sources", if you collect income, you have to pay income tax....

Tax break for virtual items

[Anonymous Coward]

I totally disagree. Anything related to virtual worlds or causing people to spend money on virtual items in virutal worlds should not be taxed. What would the tax money be used for? Programs to keep kids off the streets, minimize drugs, sex and violence? WoW and other virtual worlds do exactly this. If Johnny bought $500 worth of WoW items, he can't spend $500 on that lovely AK47 and shoot up the neighborhood.

Really, they should be giving tax breaks to the folks that promote such wonderful time-wasting, life-saving products.

Legal precedent does not support your assumption

[Nymz]

In cases of another game activity, gambling, there have been numerous precedents that show just how complex and convoluted it can be to impliment unfair taxation.

Do you have a record of every poker hand (won and loss), or every slot machine pull? total winnings and losses over a four hour session? over a day? when you cash out? What it often comes down to is a corrupt definition of proof. In REAL court cases even fastidiouly documented logs of winnings and losses have been used by the IRS to prove winnings, but then the same papers would be dissmissed for proving losses.

The bottom line is that if you impliment a corrupt and unfair method of taxing citizens, then you can expect everyone participating (government, companies, and individuals) to live up to a similiarly corrupt and unfair methods of avoidance.

Not really....

[raehl]

...all the 'money' is owned by Blizzard. The only thing that changes is who gets control of it in-game.

Saying that transfers of the in-game items in-game should be taxed is like saying that you should pay taxes every time you pass the dice next time you play D&D.

Re:Not really....

[Atlantis-Rising]

All the money in the United States is legally owned by the United States Government. But it represents value of goods and services changing hands, as does virtual money in MMORGs. That's what's taxable.

Re:Not really....

[MeanderingMind]

Can someone expand on this? It'd be nice for more detail or confirmation of the veracity of the statement.

You missed something.

[raehl]

Take the example a little farther - now not only do I pay them in lindens - they pay other retailers in second life for out of game items - say real clothes - in lindens. Out of game no money changes hands - there is nothing to tax.

This is the point where your argument breaks down.

Income is taxable, whether it's in cash or in objects. If I pay you $10,000, you owe income taxes on $10,000. If I instead give you a car worth $10,000, you *STILL* owe income taxes on $10,000. And if I give you a car in exchange for labor, we owe social security and medicare taxes on that too.

So I agree that when you give people lindens to do something in-game that there's no basis for tax. But if someone gives someone else in-game lindens, and then receives a tangible real-world item for it, like clothing, or an XBox, or whatever, the object received is taxable income at the fair-market value of the object.

So even though no REAL money changed hands, the person in your example did get something of real value (the clothing), and that income is taxable.

Thus making this a scenario at least the US government IS prepared to handle. It's already covered by existing legislation.

Uhh..

[Dread Pirate Skippy]

I don't get it...she thinks you should be charged tax on money you make? Don't we call that income tax? Its not like she's saying you have to give Uncle Sam 10% of your Lindens, or you owe the government a dollar for that nifty Epic you picked up last night...just that if you playing this game results in real income (e.g. you sell that Epic on eBay or you cash in your Lindens), you get taxed on the income. Of course, then you could even argue that your WoW subscription is a business expense and start claiming an extra hundred bucks or so a year. A real addict could be making some serious cash on this deal.

Dont' forget...

[raehl]

The 50% discount for debt to be paid by your children.

One thing I got from this...

[CFBMoo1]

It's better to not encourage profit making from games like WoW but more so in Second Life where they actually let you sell the IP you make in game. I've seen too many people I've made friends with in WoW get their accounts compromised and their virtual goods stolen where they never had any intent of doing anything but having fun. I think something should be done more to discourage people from making real money in games and things they shouldn't be in the first place.

EULA vs Taxes

[ZirbMonkey]

If legislature ever develops a tax on MMOs, You run into a huge problem with the End User Liscence Agreement. WoW is the main one to look at, just cuz it's so popular.

All title, ownership rights and intellectual property rights in and to the Game and all copies thereof (including without limitation any titles, computer code, themes, objects, characters, character names, stories, dialog, catch phrases, locations, concepts, artwork, character inventories, structural or landscape designs, animations, sounds, musical compositions and recordings, audio-visual effects, storylines, character likenesses, methods of operation, moral rights, and any related documentation) are owned or licensed by Blizzard.

So lets say that someone is making 6 figures a year off WoW property. There are people with server closets full of bots that farm, and they do have websites where they (illegally) sell gold and items to people for cash. These people should be taxed. Yet they'd never put it on their taxable income because their activities are technically black market and illegal. They're selling property of Blizzard to other people, when they don't have the rights to do so.

I'm waiting for the day Blizzard files suit against gold farmers. I honestly think there's more money in WoW than RIAA suits.

Right, I said that

[Sycraft-fu]

If you make money, you pay taxes, if you don't you don't. If you pay taxes there's a potential for writeoffs, if you don't there's not. Games change nothing.

Re:Right, I said that

[CastrTroy]

That was my argument from the beginning. If they want to play the game of taxing money made from playing a game, then I'm sure the people playing the game won't mind playing the game of making writeoffs based on the costs incurred from playing the game, including time spent playing the game.

Taxing Virtual Goods

[johndmann]

Point: In the World of Warcraft (not sure of the other games), all of the characters, currency, and items (armor, weapons, etc) are owned by Blizzard, and you have no rights to them - Blizzard even owns your character's name, according to their EULA.

Fallout: Timmy and Johnny are 5-year old children who play with a ball at their daycare. Does this mean their parents have to pay tax on each time the ball changes hands simply because it is worth monetary value? The ball is still owned by the daycare.

Clarification: In the game, some players sell their currency and goods for real-world money on sites such as ebay and a slew of underground ones. Timmy should only be taxed if he charges Johnny real money to be able to play the ball, correct?

Future: What is the next step? Import/Export taxes/levies for international players to be able to receive the treasure they get after killing a dragon in the game?

No, sorry

[Sycraft-fu]

You are trying to add complexation where there isn't any. I realise you get taxed on things of value. However, that is only the case for things that have actual value. That could be something physical that has a value because of it, or a professional service in which case the fair market value is what's used. Thus it isn't magic, things don't have value just because someone pretends thinks they do. If you exchange professional services with someone you have to pay tax. However your mom doesn't have to pay tax if you help her clean her house. Nor do you have to pay tax for getting advice on the Internet. Though it may be provided by a professional, it isn't in exchange for anything, thus there's no tax issue.

If you paint a painting and some wacko art critic values it at $1,000,000, you don't have to pay income tax on it. The only way you'd owe that is if you actually sold it for that price. Just because a random guy think it is worth that. Likewise just because some random guy feels a given sword in WoW is worth $100 doesn't make it worth $100. If you sell it for that much then yes, you'd need to pay tax, but it doesn't have that value when you get it simply because you have it.

This is all rather simple, and works just like any other hobby. Tax isn't an issue unless you turn your hobby in to a business and start trying to make money.

Maybe 'Gold' should be called 'Points'.

[sherriw]

Wow, this strikes me as the most absurd article I've read in a long time on so many levels. I hardly know where to start.

I think that the original writer of the article is confused because it's called 'Money' or gold in the virtual game. But it really isn't. It's a digital file. Period. Maybe all the virtual games should reword 'gold' to be called something like 'Points'. Then the tax lawyers won't be confused. Then again, they might start taxing all the PacMan and Bejeweled players for all their Points earned. Hahahaaha.

What exactly are we taxing here? People's hobbies? What about:

- My 'valuable' belongings I acquired in Animal Crossing?
-My upgraded weapons in Resident Evil 4?
- My library of articles I've written for my website?

The theme here is that people can work all day long on something to create an item of value. But unless it's being sold in the real world for real money, then we don't tax it. And in most online games this is illegal (against the terms).

The fact that it's virtual money makes it harder to grasp, but you can boil it down to any real world example:

Suppose my Aunt likes to make scrapbooks. She pays an initial taxed cost for supplies (buying WoW in the store). She then spends hours upon hours making a beautiful scrapbook (a rich high-level character). The scrapbook has value, but if she keeps it for herself or gives it as a gift (the virtual gold stays in the virtual world) then taxation doesn't apply. But, if my aunt tries to sell the scrapbook (say she made it for someone else), then it should get taxed with a sales tax. But there are laws that you don't have to pay sales tax until you start making like $30,000 per year (in Canada). So if I just ebay a bunch of my furniture, I don't have to collect sales tax from the buyer.

If the in-game currency or items get legally sold for real money, then fine, go ahead and tax away. Otherwise, I would urge the US gov to try using money management skills to get out of their hole, rather than taxing their citizens to death.

I am amazed that people would stand for this.

SL is cracking down on in-game casinos

[SiliconEntity]

Related to this but much more significant in my opinion is SL's announcement last week that they would be cracking down on in-game casinos. Presently casinos and sex services make up the lion's share of the traffic in the game, but casinos will now be excluded from listings and search results. Announcement here:

http://blog.secondlife.com/2007/04/05/advertising- policy-changes/

It has been a basic tenet of Second Life that all Residents are legally responsible for their own activities and for complying with the laws of the local jurisdiction in which they reside. However, given the ambiguities of the issues, Linden Lab has decided that we will not accept any classified ads, place listings, or event listings that appear to relate to simulated casino activity.

Exchange Rate is the Key

[Anonymous Coward]

If government ever tries the asinine tactic of taxing virtual money, here's how we should handle it:

1. You earn 500 gold from WoW.
2. Tax rate is 0.25.
3. Your tax is therefore 125 gold.
4. Exchange rate from golds to dollars is........ drumroll, please...... ZERO.
5. Multiply 125 gold times the exchange rate and you get what?! ZERO!
6. Now you send Ted Kennedy a check for ZERO dollars and the tax-happy Demos can pat themselves on the back and say they did good.
7. End of this ridiculousness and on to the next ridiculous thing.

You are conflating two separate issues

[manekineko2]

You are conflating two separate issues:
Getting items yourself in game, and trading with others for items in game.

Mining a virtual mine is the same as mining a real mine. There is no tax on whatever you dig out of the ground.

Selling a virtual sword for virtual gold is the same as selling a real sword for real dollars. There is a tax on exchanges.

Re:I already paid my tax.... or did I?

[WillAffleckUW]

Can we tax Chinese gold farmers for exporting WoW gold to the US then?

Meanwhile, if I choose to transfer 2 gold from my level 21 warrior to my level 16 mage, no taxable activity has occurred. And when my son and I - with the same account - transfer stuff from one of us to the other - my mage uses tailor and enchanting to make things, his warlock miner blacksmith crafts weapons and armor to be enchanted - it all came out of the same account paid by us - 50/50.

But if you try to tell me I can't just give a 12 armor cloak, a nice weapon, and a few 6-slot bags to a starting character out of the kindness of my heart - then get thee behind me, IRS!

Re: consumables for raiding

[Anonymous Coward]

I finally realized what you're actually saying a few minutes after I read your post. Forgive me if this is obvious to everyone else or if this isn't what you actually meant, but here's my take:

Raiding drives the virtual economy. People need to buy stuff so they can purchase raw materials/consumables for storming the castle so to speak. Afterwards, they bring home fat loot and sell it for what the market will bear. Obviously they wouldn't keep doing it if it didn't pay off, so the developers make sure to keep the rewards current. This makes raiding like a sure thing business investment subsidized by the government.

But doesn't it sorta work that way in real life too? Raiding == going to war in Iraq. We have thousands of workers supporting the war machine by farming/crafting munitions. The government buys the munitions and uses them as consumables in a "raid". They bring back oil and lucrative reconstruction contracts and sell them for what the market will bear. Also, just like in a MMORPG, we're taxed by the guild (government) so that the elites go on raids.

Internal Revenue Code Sec. 61: Gross Income define

[ahbi]

TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter B > PART I > 61

  61. Gross income defined
(a) General definition
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Alimony and separate maintenance payments;
(9) Annuities;
(10) Income from life insurance and endowment contracts;
(11) Pensions;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or trust.
(b) Cross references
For items specifically included in gross income, see part II (sec. 71 and following). For items specifically excluded from gross income, see part III (sec. 101 and following).

Let me repeat:
"gross income means all income from whatever source derived"
What is so hard to understand about that?
What tax student didn't think this was taxable? It is the same as the barter-club people back in the 1980s.

Expenses - WOW membership, high speed internet

[DerangedAlchemist]

If income is taxable, then expenses are deductible, right? So the game purchase, monthly fees, internet connection (required for both the game and sales), etc. are deductible. How about the video card and ram upgrades? Can that be justified if they are needed (or 'recommended' quality) to play the game? My 'Gold farming' business went poorly last year. I made $2 selling gold and lost $1000 on expenses. Maybe this year I'll be less distracted by quests ;) This leads to another question I've wondered. If gambling winnings are taxable, then gambling losses would have to be deductible, by definition. Is there something I'm missing here? (A minimum amount of gross profits maybe?)

Re:Expenses - WOW membership, high speed internet

[raehl]

I'll start with gambling, that's the easy one. The fact that you are trying to suggest that gambling losses SHOULD be deductible leads me to believe you're probably not qualified to talk about whether internet connections and video cards should be deductible, because gambling losses *ARE* deductible, but only against gambling winnings.

Essentially, when the IRS says 'Gambling winnings are deductible', they MEAN *NET* winnings, i.e. money won minus money lost. It's not like if you play black jack and win 20 $50 hands and lose 10 $50 hands that the IRS taxes you on $1000. They only tax you on $500, your winnings. And that aggregates over the whole year, and your lifetime. So if you have one day where you win $2000 and another where you lose $2000, your gambling winnings for the year are $0. And if you ahve one year where you lose $2000, you can't deduct it - but if the next year you win $2,000, your previous year's losses offset that and your gambling taxes are still $0.

Now, going back to whether your internet connection, video card, etc, are tax deductible, the answer is, only if you are playing WoW as a business. The quickest determination of whether you're doing it as a business is if you're making money at it. So if you make a profit after your deductions, you'd have a pretty good reason to deduct those expenses.

If not, you have to otherwise show that playing WoW is a business activity, pretty much that you INTEND to make a profit. That's a lot more subjective, but not something you're likely to prove. Also, keep in mind that you have to prove that the primary purpose of those expenses is related to your business - i.e., not only would you have to use your internet connection and video card etc. to play WoW, you'd pretty much have to use them EXCLUSIVELY to play WoW (or other activities related to your business - maybe you play EVE too).

Regardless, paying $2 in taxes on sold items and deducting the cost of your computer isn't going to fly.

Re:Expenses - WOW membership, high speed internet

[raehl]

And of course I MEANT...

"Essentially, when the IRS says 'Gambling winnings are taxable',"

wow, that statement is just ... dumb.

[raehl]

Remember back in elementary school, when you were doing word problems, and your teacher told you to estimate your answer to make sure the answer you calculated was reasonable? So, for example, if the problem said to multiply 10 by 12, and you got 3,000, obviously you wern't right.

Same thing here. Your answer fails the 'common sense' test miserably. 'All the money in the United States is legally owned by the United States Government' can not be true, for several obvious reasons.

First, the US government can't demand that you give it any dollars you have. A key aspect of ownership is control. Second, most money 'in' the US isn't even in the form of paper dollars - it's in bank accounts and other virtual instruments. How does the government have any ownership over that?

The US Government doesn't own US currency any more than it owns your car. It has about the same amount of control over both - it regulates them, it can take them with due process, but your money, and your car, are yours.

As for what money represents, money represents an allocation of resources. It has value because people believe it has value. In that way, it's not much different than gold, except it's easier to move around.

Re:wow, that statement is just ... dumb.

[Atlantis-Rising]

Very well. It's not true anymore. How's that? When the dollar was tied to the gold standard, it may have been true that the government could take your dollars and give you gold for them instead.

But you mistake what I mean by ownership- I mean the government 'owns' the dollar in much the same way that I 'own' the copyright on this post. You could walk off with the words, and there's nothing I can do to stop you. If you make an illegal copy of this post, I could prosecute you for copyright infringement. What do you wanna bet will happen if you make an illegal copy of the US Dollar? Yes, that's right, the US Treasury Board (or its investigative/police arm, the Secret Service) will come after your ass and throw it in prison.

What you have to remember is that, especially where the government is concerned, 'ownership' can mean many different things.

Really dumb

[tkrotchko]

This is really pretty silly.

If I imagine that I earned $1B dollars in my head, can I be taxed on it?

No. You agree that is silly.

Now let's say that I go to my laptop computer and type in a file:
    "I earned $1B in my head today"

Can I be taxed on that? No. You agree that is silly.

Now let's say my friend looks at my computer and says "Oh, I see you earned $1B in your head today. I just made a solid gold Ferrari in my head today that I'm willing to exchange for the $1B in your head today". And so he exchanges his pretend Ferrari for my pretend $1B.

Should we both pay taxes on our pretend ferraris and pretend $1B?

No. We wouldn't even have that discussion. It's so incredibly stupid.

So explain to me again about this taxing pretend stuff on a computer?

Federal Sales Tax

[dorath]

If a federal sales tax were implemented, then the IRS wouldn't have to worry about virtual gold being sold for real cash. The government would get its cut when the person recieving the money went to buy a real world good (in the US anyway).

Yes, yes, there are plenty of other arguments for and against a federal sales tax, but I felt that it should be pointed out.

WoW Vs. Second Life

[cleme100]

One of the integral differences between the two games is the way that currency is handles. Wheras in WoW your financial resources are determined entirely by actions within game, I.E. running quests, killing monsters, and selling items to other players, Second Life allows the purchasing of in-game currency via a conversion system to "real" dollars. While gold-buying and item and account selling do occur in World of Warcraft, these activities are not endorsed by Blizzard, and in fact violate their Terms of Service. Therefore, I would tend to say that taxing the purchase of Second Life's virtual currency is perfectly legitimate, because it involves a real-world exchange, wheras taxing one's entirely virtual economic transfers within the World of Warcraft should be non-taxable.

No, there's not

[Sycraft-fu]

Because the sword has no fair market value. There may be random people that try to pay a certain amount for getting it, but that doesn't mean there's an actual real world value for it. Like I said, same kind of deal as with a painting. I can paint you a painting, well I can't as I have no artistic talent but a painter can, and give it to you. If some nut then declares it is worth a million dollars, you don't owe tax on that million. His opinion doesn't mean anything.

Wrong

[WingedEarth]

Income tax is wrong and should be abolished. Tax the property I live on if you want, because that land is really owned by the State (owning property means you're renting from the State). But my labor is my property, and bartering my labor for something of equal value, whether or not it be cash, is not "income," its just a fair exchange. Income isn't defined anywhere in the Internal Revenue Code, but the IRS enforces it against everything it can, and they get away with it. An income tax is a tax on existence. The government has no right to do that. Tax corporations or property, or government services, but not income. Oppose the income tax. Abolish the IRS. Abolish the Federal Reserve. Vote Ron Paul for President, 2008.

Re:Wrong

[/dev/trash]

So if I can't pay my property tax, do I what? Float til I can?

Re:Wrong

[WingedEarth]

Sell your property?

you can't profit off of what is not yours

[not_anne]

WORLD OF WARCRAFT®
TERMS OF USE AGREEMENT
Last Updated January 11, 2007

Ownership/Selling of the Account or Virtual Items. ...Blizzard does not recognize any virtual property transfers executed outside of the Game or the purported sale, gift or trade in the "real world" of anything related to the Game. Accordingly, you may not sell items for "real" money or otherwise exchange items for value outside of the Game. If you sell, transfer and make real money off of Blizzard's property, it's stealing, isn't it? Also, there is no way in or out of the game to transfer in-game gold for real money, other than on the black market of gold sellers. Black marketeers usually don't pay any sort of taxes.

Whoosh!

[Anonymous Coward]

Look through zyl0x's posts in this thread. He keeps posting the same non-factual claim over and over again. In fact, I'd argue that the easiest way to earn karma in this thread is to point out that zyl0x is wrong.

Re:Whoosh!

[MeanderingMind]

I'd noticed that afterwards. I'd just assumed it was "Slashteria" where many idiots were spouting, or parroting, FUD. Then I read someone else's comment who noted the link between all the idiocy, zyl0x.

Meh, I need Karma like I need days spent on WoW.

Who cares?

[Anonymous Coward]

Who cares what some fat girl thinks about what should and shouldn't be taxed? This link is all about her "views"... like we give a damn. Please post a story like this when it's about a president signing such a tax into law. Until then, leave the opinions of obvious 3rd party outsiders off of /.

You have no idea what you're talking about

[manekineko2]

It is a testament to problems inherent in mass-moderation that you have been modded up in any of your posts where you seem curiously insistent on spreading misinformation. You really should be at -1 Wrong on all of your posts.

Sure, there is no income tax on gifts. However, if I paint a painting, and you make a ceramic piece, and we exchange them, you must report that on your income tax. The fact that most people wouldn't simply makes them tax cheats. This is no different than a dentist doing a lawyer's teeth in return for a will.

Similarly, if I give you a Sword of 1000 Truths, and you give me 100 gold pieces, each of us is subject to tax.

EVERYTHING has a fair market value. It's simply up to you and the IRS to work out what it is between the two of you.

Re:You have no idea what you're talking about

[Anonymous Coward]

Um... so do you report all of your property and money in Monopoly?

Question: So which forms do I fill?

[ReallyVirtual]

Last time I checked, people from _all over the world_ were playing MMORPGs. I live in Pakistan and play on a German server, who gets my tax money/gold/L$? If my company has offices in a dozen countries, and I let my China office buy an island in SL, is IRS going to come after me? IMHO, the author is just trying to create more business for herself (and traffic too) :)

Good Luck With That

[Anonymous Coward]

There is just no way this can be managed. Many of our lawmakers can barely understand
the difference between pressing keystrokes that cause red pixels to appear and actually
killing someone in real life. Does anyone actually think that they can explain the
difference to Joe Leiberman between picking up a rocket launcher in Doom and picking up
a sword in World of Warcraft, and why the former cannot ultimately be taxed but the
latter ultimately can?

National health care and getting out of Iraq are easier problems to solve than this.

RTFN!

[deviceb]

yeah that means read my freakin nutz!
Whoever even thought of this idea should be sent to the funny farm

Greedy bastards.

How to deal with theft?

[Barlo_Mung_42]

If in-game cash has real world value how should we deal with the PVP situation in some games where someone can kill you and take a percentage of the cash you are holding? Does this become a real world crime? Do we treat a dual differently than a knife in the back gank attack?

So then

[Sycraft-fu]

We should be taxing everyone who downloads Linux? I mean it has a value according to you, right? I guess we should also tax people when the read professional help information online, again it has value.

See the silliness of the statement?

Items in games have no real value as games aren't real. WoW gold is no more a real currency than monopoly money. At any time the company that runs the game could simply decide to flip the switch and it all goes away. That some people are willing to pay for it isn't relevant, most aren't and the company expressly forbids it. Just because someone might run a monopoly game where players can buy monopoly money with real dollars does not mean all those monopoly dollars have value.

Also in your painting - pottery example, sure we'd need to declare income, but only to the extent of the material value and value of the time put in. As I said, if someone appraises them at a high price isn't relevant. Had they actually been sold or at the very least made for sale at a high price then yes, that'd be what you'd need to use, however they don't have a high level of value just because a crackpot thinks they do.

Taxing WoW!

[SoItBegins]

First of all there is no real currency exchange value set in place. Every server has their own value for gold. On one server you can buy a world epic for 300 gold peices and on a differant server that same item might be 700g or 100g. We can clearly see the lack of value system when new servers are created. The value of one gold piece is much higher than the value of one gold peice 1-2 months in. Therefor taxing in-game sales/exchanges is rediculous, not to mention if it actually happens how long it would take to differentiate %tax between servers. As for selling virtual items IRL, any sale income is taxed. However, the items we find in-game don't actually belong to us, as stated in the license agreement, they all belong to Blizzard. So selling these items over the web is actually a form of stealing, so taxes don't exactly apply (You wouldnt report money you stole from a bank). This idea was stated earlier, just wanted to revisit it. Second Life is a differant story, they actually use a currency exchange, and you can actually recieve legal rights to what ever you make on SL. In summary, I believe taxing in-game exchanges on WoW isn't possibly due to the lack values. Furthermore, if the gold/items/account dont belong to us in the first place, why are WE being taxed?

Sigh... it's just like real life, think about it..

[fantomas]

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

Sigh. So what's the problem? Sounds like folk are just saying "you make money over a computer, you pay taxes". People also do business internationally, let's modify your example:

"(In Real Life), (Some guy) could live in Canada while (they use an online financial service based in the) U.S. but do business with a guy in Germany whose (online account is in a bank) in France."

See? no problem. Happens in real life too. International lawyers and tax specialists can deal with that, they'll deal with you money moving around countries as well. Who cares its on WoW servers rather than international financial trading servers?

Awesome

[CrazyJim1]

Now I can finally earn tax writeoffs for my WOW gold donations to poor newbies.

Ok so...

[Kardall]

Hunter Weapon.

It's valid on so many levels.

I can't see the problem here...

[Restil]

If activities in the virtual world result in income in the real world, that income can be taxed accordingly. Activities that stay in the virtual world are otherwise non-taxable. If I do something commercial in the virtual world that will someday be worth money in the real world, we wait until there is actually income in the real world from it before we tax it. Anything prior to that is pointless.

Think stocks... specifically a stock with no dividend. I can purchase a share for $100.. The $100 I spent on it has already been previously taxed. Later down the road, that same share of stock is worth $10000. However, until I actually sell it, its value is as virtual as lindons. Sure, I can probably find a buyer for it today for $10000, but tomorrow it could just as easily be worth $100 again.. or even less. Once I actually SELL the stock, and say I get $10000 for it... the $9900 difference (minus broker fees) is taxable at whatever rate the various governments decide it should be taxable at (capital gains in this case). So fine, if the feds want to determine exactly what rate virtual property should be taxed at when real money trades hands, that's an acceptable intervention. But as long as the money stays in the virtual world, nobody beyond the owner of the servers should be able to touch it.

-Restil

Dead Horse

[Jarik C-Bol]

they need to add a Beating the Dead Horse tag. honestly, this is a moronic idea IMOH. i am not a lawyer, but i don't see how this could be done in a way that will not cause huge leagal battles, angst, anger, frustraion, and a general unpleasentness. its like the idea of prohabition, it will not go over lightly if any misguided individual actualy takes steps to start taxing virtual ecinomics. and where does it end? do researchers have to pay tax on gains in ecinomic computer models? this is a barel of apes we don't want to open.

Is the SEC interested?

[woolio]

I am an accountant and you are correct. There are a few issues here though. One is showing intent to turn a profit. This will allow expenses to be used as business deductions.

Alternatively it can be looked at as an investment. As an investment active/pasive rules would apply hence losses can only be set against like category gains. Another problem here is determining the costs basis for the virtual items sold which could be very complex to determine but it possible. It comes down to determining the portion of you stake in the game that was sold and your "investment" in the game. If you want to try to deduct your cost basis maticulous record keeping is the key, both as "investments" are made and the % of your stake in the "investment" sold at the time of sale.

Interesting interpretation. If game play constitutes an investment then does the Securities and Exchange commission get involved? If my game "investment" is based upon my actions in the game (e.g. not publicly known), then would this be insider trading?

Isn't that what separates "owning/running a business" from "investing in a business"?

I don't really know, I'm not an accountant. Just food for thought.

Re:Is the SEC interested?

[Jonny do good]

If game play constitutes an investment then does the Securities and Exchange commission get involved?

There is no need to get the SEC involved. They only involve themselves in regulated securities exchanges, or in other words pubicly listed companies. Unless you are attempting to sell stock in your in-game "investment" then they have no juristiction. When "mom and pop" open a store (another form of investment) they don't regulate that and this would be a similar situation.

If my game "investment" is based upon my actions in the game (e.g. not publicly known), then would this be insider trading?

Insider trading can only occur when you use non-public informtion in regard to publicly traded companies.

Isn't that what separates "owning/running a business" from "investing in a business"?

Owning a business is a form of investing. Running is a business is a job and generally a salaried position even in privately owned small businesses. The act of investing is contributing something of value (time doesn't count for the IRS, but any property with value does). Even though most small buinesses owners are in a management position the two categories are different. The IRS has rule governing investments and if a business is activily managed by the investor the investment is treated differently than if the investment isn't run by the owner (active/passive treatment). Actively managed businesses (most WoW and SL players would fit into this since it requires 500 hours per year to count) can use losses from the business to offset regular income while passivly managed business losses can only be offset against other passive losses (these can be carried forward for up to 20 years and backward 2 years if I have my numbers correct but this applies to both categories).

I wouldn't recommend trying to use MMORPG's as a way to constitute a business though unless you really can demonstrate an intent to turn a profit. If you are on EBay buying and selling virtual goods in exchange for cash you probably would have a case but the odds of an audit are probably over 50%. One of the best ways to get an audit is to take something that is usually considered a hobby and claim it as a business. It would be much easier to deduct expenses against capital gains so that if you sell virtual goods on EBay you won't have a gain but here accurate records of expenses used in the "investment" are key as well as any % stake in the game being sold at any given time. I can't say how they would treat having losses on your investment in a virtual world to offset gains in something considered less virtual, but claiming a that there was no capital gain would probably be pretty easy to justify. I would speak to a tax accountant about your specific situation before doing any of these, but in theory there really is no difference between a virtual world and the real world if cash is exchaged in the real world.

Simple Solution

[Anonymous Coward]

If I get taxed for any items that I obtain and keep virtually and don't cash out, then I should theorectically be able to pay the IRS in Linden Dollars, and they can't complain about it.

I should only be taxed on REAL money I MAKE from virtual items. Charging for Linden Dollars should be exactly like charging for a gift certificate. It's not a national currency, but can be exchanged for real property.

WoW / Second Life should be free to play...

[pandrijeczko]

...to get all the sad muppets online at once.

And while they're all busying themselves killing Orcs/living an online life, the rest of the human race should quickly bugger off to a new planet somewhere in a few colony ships.

Real World Taxes *aren't* services-based

[billstewart]

Most real-world taxes aren't at all based on the amount of government services that those activities need in order to exist. Taxes are based on where there's available money flow to tax - it's the Willie Sutton principle that the reason to rob banks is that that's where the money is.

There are occasional exceptions - governments might use road tolls to fund road maintenance or use fees charged for entering parks to pay for the park rangers. But that's not where the bulk of the money goes or where it comes from. In the US, the vast bulk of government money comes from personal income tax, and the second-most is either property taxes or corporate taxes of various sorts, or borrowed from foreigners that your children or grandchildren will need to pay back, and it mainly goes to income redistribution programs, military (federal), schools (state or local), prisons (largely fueled by the drug war and related real crimes), bureaucratic parasites, and medical care for old people, in ways that are almost never proportional to the costs of the service nor the benefits to the individuals paying.

Rich people generally pay far more than their proportional share of the wealth - not because the benefits to them are disproportionately higher, but simply because the government can't get as much money as it wants to spend any other way. Even a proportional (aka "flat") tax isn't enough for current spending - they'd still have to be taking far more than 100% of the income of the really poor and taxing the lower-middle classes at a rate that would leave them starving on the streets and/or running a violent revolution, as opposed to the current situation where the poor mostly don't starve and the lower-class workers can vote Democrat if they can't be tricked into voting Republican.

The reason not to tax in-game revenue is simpler - it's a purely fictitious system, and any real-world value occurs because people are willing to make transactions between fictitious goods (the game currency, or magic swords, or whatever) and hard cash, and those transactions are *already* subject to taxation. In practice, much of the dollars-for-magic-swords business happens in the informal economy, and there's the jurisdictional question of which government gets the money - local governments in the US with sales tax revenue already complain that they're not allowed to tax interstate or international commerce (in spite of that being a major reason that the US developed a strong economy), but the bulk of the transactions seem to be Chinese exports to the US, with the income going to Chinese entrepreneurs and only taxable there (unless the US wants to embarass itself by placing a protectionist import tax on magic swords, of course :-)

Does this mean....

[Overkill Nbuta]

If i suck at getting wow gold and dont manage to get enough to sell, that i can count my account subsription as a loss and get money for it? What goverement gets that money? Is it where the servers our, where i play, who i pay, the EB i buy a card from?

Brainwashed

[Anonymous Coward]

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

Really? If that was true they wouldn't be taxes, you'd be paying for what you use. Taxes are what you are forced pay whether you like it or not or whether you benifit or not.

I already pay taxes in Second Life!

[mwvdlee]

It's called "membership fee".

The Beatles had it right

[McGiraf]

One, two, three, four...
Hrmm!
One, two, (one, two, three, four!)

Let me tell you how it will be;
There's one for you, nineteen for me.
'Cause I'm the taxman,
Yeah, I'm the taxman.

Should five per cent appear too small,
Be thankful I don't take it all.
'Cause I'm the taxman,
Yeah, I'm the taxman.

(if you drive a car, car;) - I'll tax the street;
(if you try to sit, sit;) - I'll tax your seat;
(if you get too cold, cold;) - I'll tax the heat;
(if you take a walk, walk;) - I'll tax your feet.

Taxman!

'Cause I'm the taxman,
Yeah, I'm the taxman.

Don't ask me what I want it for, (ah-ah, mister Wilson)
If you don't want to pay some more. (ah-ah, mister heath)
'Cause I'm the taxman,
Yeah, I'm the taxman.

Now my advice for those who die, (taxman)
Declare the pennies on your eyes. (taxman)
'Cause I'm the taxman,
Yeah, I'm the taxman.

And you're working for no one but me.

Taxman!

what about jurisdiction?

[N3wsByt3]

If an USA citizen plays on a european server, and converts his gold at another server in the kayman isles, where exactly should he pay taxes?

He then waits a few days, gold gets less expensive and he can buy more with the sama amount, so he does. He now has converted everything to virtual gold... when he nows plays on a USA server, should he pay on the amount of virtual gold he has? I mean, he has converted in real money, but *the profit* he made is only measurable in virtual gold.

Isn't that rather an investment?

And what about tax-reduction? If one claims virtual swords can be taxed if you pay for it, than equally you can claim some items should be tax-deductable. Somehow, I don't see the tax-office willing to accept a virtual security-alarm as a cost that goes of your real taxes.

While it might theoretically be possible to find an answer for everything, in a pragmatic sense, it just would get incredible complicated... I mean...I don't know how it is in your country, but they already have difficulties here to combat fiscal fraude in reality, let alone they could take on an online virtual world. For instance, imagine the difficulties when someone could (perhaps rightfully) claim the virtual items he sold were second-hand... then a whole other tax-system/amount would apply (at least in my country).

It would rather be opening a can of worms.

Re:what about jurisdiction?

[Firethorn]

I was playing devil's advocate a bit. Explaining a particular viewpoint.

The actual transactions, at least until you reach the epic level stuff, are so penny-ante to not be worth the effort.

My viewpoint remains the same; treat it like an investment or work in progress; IE it remains untaxed until you start making a living off from it(IE more than garage sale amounts, $2k at least). Only consider 'real world' transactions with real currency. Sells an item? Income. ISP/account fees? Deductible as long as you meat the 'intent' requirement. Treat it something like the worker is working commisions for foreign investors. At some point the money has to hit a native account.

What's next?

[rwell]

Monopoly players taxed for the amount of houses / hotels they own? :)

*YAWN*

[Slashdot Parent]

The problem is that under that principle, investors could evade taxes. Basically, investors have long salivated at the thought of deferring taxation of all intermediate gains (reinvested dividends) until spent on consumption.

Investors can already do this though, as you say, retirement accounts. But it can also be done through:

1. Other tax deferred accounts (529s, etc.)
2. Cash value life insurance (BUT DON'T DO IT! unless you know why not and know what you are doing)
3. Real Estate (1031 exchanges)
4. Offshore investing
5. Probably 100 other ways I can't think of in the next 15 seconds.

So what's the big deal?

Re:*YAWN*

[UbuntuDupe]

What's the big deal???? Are you high? Why do you think tax-managed mutual funds exist at all? I won't go through the ones you listed before your #5 (i.e. the one where you inflate the apparent size of the set), except to say that yes, you do have to declare dividends from offshore investments, and if you haven't been, you're in deep trouble if they find out.

Depends on if you are making money

[Slashdot Parent]

If you're turning an actual profit and paying taxes on it, the IRS will be fine with it.

On the other hand, as you say, if you are not making any money, and don't really stand to ever make any, then the IRS will reclass you as a hobby in 3 seconds flat.

No.

[Slashdot Parent]

No.

This would be the same as if you had a taxable gain in another (actual) currency. You would need to determine the value of that currency in dollars and pay in dollars.

The IRS does not currently accept, and never will accept Jordanian Dinars, Hungarian Forants, Thai Baht, etc.

In defense of NJ

[JLWoz]

I agree with Red Flayer - and tomz (and others) if you aren't a native New Jerseyan, you can't understand. It is a true mental thing with us natives. The thing is us real true and PROUD natives actually KNOW the state, unlike you who proved it by naming two towns/cities (Newark and Madison and points "inbetween") when Madison and Newark are what.... 15 miles away from each other? That's the problem with people like you, NYers and people who've never been here, or been past the Pulaski - they just don't know NJ. I blame the NYer influx for totalling ruining the state, it use to be much different when I was I kid (I'm a central-east coast native).

Beyond the few tiny counties bordering Manhattan (and yes, I know - technically the Hudson River), which is over populated and over polluted - NJ is a very different place - and is very much a "Garden State". I believe it was the Travel Channel that listed Cape May as a top 10 beach in the US, up against Hawaiian, Floridian and Califorian beaches. There are peaceful and beautiful mountains up in the northwest - very PA actually there. And quite and peaceful plains in the north and south central. And truely creepy and deserted plains along the shore. No way is it over populated and polluted everywhere. You just need to explore.

It's like blaming and judging all of NY state for Manhattan and the other 4 boroughs.

Now the people are another story - but still is those areas, the people tend to be much nicer, and the bad ones seem to have moved here from NY. Like the annoying neighbors who moved in behind me, who steal things and don't understand there is a thing called a possum, as they think we are habouring "RATS" to get get back at their crimes - lol. And the worse drivers (outside of those annoying "NY" counties) usually are NYers and PAans - I even saw a bad "NJ plate" driver, I commented - they must be originally from NY and looked and saw the dealership the car was bought from... Manhattan - lol - no NJan buys a car in NY, much less MANHATTAN, so I was right on that account.

As for taxes and all, I looked at the facts (and I'm very familiar with PA, (the real PA, deep into the state), have been visiting all my life, since my parents are from PA, they moved back to PA and a brother lives there now also). Taxes are just called different things in PA and other states, different "fees" and such, property tax is the same (like you pay twice more for the house in CA or NY, evaulated at twice the amount of the NJ house, paying "half" the rate, but actually the same amount in taxes in the end AND more in mortgage) - and if you find the right town in NJ versus certain towns in PA (especially rural ones) it is CHEAPER in NJ. Of course there ARE completely afforadable ones too, but those ones are so far in and away from everything I enjoy, that the cost to be paid versus cost saved would inpact my quality of life and it's enjoyment (aka, the shore and such).

Oh and the Route 22 comment someone made, must not have gone the entire route, about a halfway west is starts to REALLY thin out, and where are all those 24 hour places? I know there are a few diners and such, but not much else - I'm a night person (and have traveled much of the state) I know where the late night stuff are, and there isn't much - at least not from Union county on.

The people who insult NJ are NYers, people who've never been here but have listened to NYers, and alleged NJans who are only from the "New York extension" counties that lie accross from Manhattan (aka Newark, Madison, etc), and transplants. They aren't "real" NJans anyway.

Yes we are over taxed, and our politicians are corrupted as hell, but the same thing goes at least in some areas of virtually any state, with some states actually WORSE (including the emminement domain) - so I prefer to stay and try and fight and change it, instead of cutting and running with my tail between my legs like some coward - and anyway, I'll just have to fight the same fight somewhere else. Hey, George Washington

Re:In defense of NJ

[tomhudson]

Shhh ... I did some work in New Jersey about a decade ago, and the people I worked (and stayed) with were decent, nice folks. There was some culture shock when I first drove across the bridge to NY and saw the big "Call 1-800-COP-SHOT" billboards atop what looked like bombed-out tenements ...