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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."
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!)
Apology to Ubuntu forum.
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.