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Taxes, Second Life and Warcraft

Posted by CmdrTaco on from the get-on-the-ype-train dept.

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."

5 of 441 comments (clear)

  1. That pretty much nails it on the head. by Churla · · Score: 5, Insightful

    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..

    --
    I'm a fiscal conservative, it's a pity we don't have a political party anymore
    1. Re:That pretty much nails it on the head. by UbuntuDupe · · Score: 5, Insightful

      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.

      --
      Apology to Ubuntu forum.
  2. What's the story here? by east+coast · · Score: 5, Insightful

    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?

    --
    Dedicated Cthulhu Cultist since 4523 BC.
  3. Re:Only one answer by drinkypoo · · Score: 5, Insightful

    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.

    --
    "You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"
  4. This is not hard by Sycraft-fu · · Score: 5, Insightful

    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.