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Decision on Virtual Taxation Coming Soon
njkid1 writes with an article at GameDaily that once again tackles the thorny subject of taxing virtual goods. This month Congress is going to issue its report on the subject. What's in the report isn't certain as of yet, but their decision could have an enormous impact on the future of massively multiplayer games in the United States. From the article: "Economists estimate the sale of virtual goods grosses somewhere around $30 million in the United States alone, and up to $880 million worldwide, but no one knows for sure. With this economy's growth factor averaging about 10 to 15 percent every month, it's no wonder the government wants a piece of the action. Here's the bottom line: Any service or commodity bought or sold using real-world money is taxable. Therefore, transactions where players pay real money for in-game currency or virtual items are taxable events. It doesn't matter that the items don't exist in reality, since it doesn't take much creativity to argue that the sale is attached to a service, such as the act of acquiring the currency or item. This being the case, it was never a question of WOULD the U.S. government step in with taxes, but a question of WHEN and HOW."
... sales of penises, adult diapers and bondage toys sky-rocket in Second Life.
Will this also make you pay tax when buying stuff out of state over the internet with out paying the sales tax?
Ebay?
This sounds like a sales tax not a income tax so even if you are not make any money they still want you to pay.
Trust the government to leech off anything remotely successful. I guess they need the money to feed the national debt monster...
"A door is what a dog is perpetually on the wrong side of" - Ogden Nash
You're already required to pay sales taxes (in most states) for out of state purchases you make over the internet anyway (Most states). It's called a use tax.
With regards to this virtual goods tax. You're already required to pay taxes on income gained from the sale of products it's up to you to report it accurately to the government (as with the use tax) but most people don't. That is why they're even considering this.
Got to squeeze every last person while giving tax breaks to every large corporation.
...it makes a lot more sense to tax these transactions. I work at a company that does virtual item sales, and many of us were disgusted about the fact that the items expire after a certain amount of time. But once someone suggested the idea that these transactions are purchasing a service, and not a commodity, both taxation and expiration make more sense. I'm sure there are those here that would disagree, and I myself don't think it's the most wonderful thing, but at least it makes a little more sense to me on those grounds.
~ I am logged on, therefore I am.
If some the transactions are truly 'all virtual', then all the US Government should get is a portion of the spoils in the very same virtual form and nothing more.
That should be really fun. Wonder what type of super-potent mega-weapon upgrades the DOD could obtain on WOW with that kind of credit! LOL!
Z.
I hope this is going to be a virtual tax.
Man blir trött av att gå och göra ingenting.
Under what authority does the US collect a service tax? Services aren't taxable in California under the sales tax laws (with a few exceptions). If I buy a weapon from a California company, farmed on Blizzard's California services, sold to me in California, it's not interstate. The federal government has no jurisdiction there.
Blizzard doesn't allow the sale of items for real money (IIRC).
If you make a living of supplying items in Second Life, you should already be paying taxes (including sales tax).
IMHO, tax laws need not be altered because the goods are 'virtual'. It's the illegal part (or not allowed by contract) which stops the tax dollars from flowing.
For the perfect anti-Unix, write an OS that thinks it knows what you're doing better than you do and let it be wrong.
The government is running a considerable risk here, as this may drive some sites to adopt an alternative currency. As long as the transaction is not conducted in dollars, the US government has no claim. As such, only the buying-in and cashing-out part, when the virtual currency is being exchanged for dollars, would be taxed. In the real world, the use of alternative currencies is largely limited to a small group of people - perhaps with the exception of Liberty Dollars, which the government is trying to shut down - but deploying an alternative currency on-line may be much easier. I can easily imagine selling stuff on eBay for the Internet dollar and than using the same currency to make a purchase on Amazon, and neither of the parties in the transactions would pay any tax until the money is converted back into US Dollars.
Please vote Dem. I don't think I'm paying enough taxes. :-P
First, I am not a lawyer.
Linden Lab, the company responsible for Second Life [SL] is physically located in California, therefore it seems that they would fall under that jurisdiction in taxation matters.
There are no California taxes collected on monies paid to Linden Lab, AFAIK, unless they are bundled into the cost. Neither the TOS nor the membership plan page nor the pricing plan page nor the billing policies make any reference to any included taxes.
The California Tax Service Center page says clearly that "Retail sales of tangible personal property in California are generally subject to sales tax." However, software delivered over the net is *not* taxed by CA under Reg. 1502of the California State Board of Equalization. {From LinkScan(tm)}.
State of California
BOARD OF EQUALIZATION
SALES AND USE TAX REGULATIONS
Regulation 1502. COMPUTERS, PROGRAMS, AND DATA PROCESSING.
Reference: Sections 995.2, 6006, 6007, 6010, 6010.9, 6011, 6012, 6015, and 6016, Revenue and Taxation Code.
(b) DEFINITIONS OF TERMS.
Prewritten Program - A program held or existing for general or repeated sale or lease. The term also includes a program developed for in-house use which is subsequently offered for sale or lease as a product.
(f) COMPUTER PROGRAMS.
(D) The sale or lease of a prewritten program is not a taxable transaction if the program is transferred by remote telecommunications from the seller's place of business, to or through the purchaser's computer and the purchaser does not obtain possession of any tangible personal property, such as storage media, in the transaction.
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This is certainly the case with Second Life software. The server software remains in California while the client is downloaded to your computer. This is the general business model for most MMORGs. However, not all states support this model of software taxation. This non-uniformity between states is the wedge that will be seized upon by Congress (under its interstate regulation powers (U.S. Constitution, Article I, Sec.8) to tax virtual wealth.
Of course, they *could* just as easily apply the over-the-net exemption as the state of California does. Considering how godawful-friendly they are to the business community, and how much they scream about "new taxes", you'd think that they would. Unfortunately, their second loyalty is to themselves and the "public pocketbook" (citizens, of course, are dead last), and so they are likely to grab that pie with both hands and start stuffing their faces (after assuring their corporate overlords that it is an unfortunate "necessity".)
DNA is a Turing machine. You, however, being dynamic and emergent, are not.
..And their trade imbalances!! I'm sure there is a politican in Washington right now fretting over, "Not only is the trade deficit huge, now they're taking our money on the internets, AND we're not even getting anything in return!!! Gahhhhh!!!!"
The Gold4Food charity will allow you to donate gold as a tax deduction on your income tax, while your gold will be sold on playerauctions.com for money in which to help the poor. I feel pretty strongly about making this charity because I can totally see people who wouldn't ebay gold to step up and donate to help the poor and needy of the world. You can say,"I'm going to go play my MMORPG for the benefit of humanity!" while also saving money on your income taxes.
God spoke to me.
Because everyone knows that the hundreds of billions spent on Iraq will never have to be paid for by taxes, right?
I am curious how this would affect the MMOG I play, Guild Wars. they give out random gifts for each year of character existence, as well as rewards for completing tasks in-game. Would these be taxable items, if they ever exceeded the $25,000 threshold? What is the limit for personal transactions between individuals before the income becomes taxable? $500? $800?
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but make sure that the last line
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is it that bad seein a hot chick again? if i see a hot chick walkin down the hall i dont say "repost"
Buying virtual goods has existed and been taxed long before Everqust or Ultima Onlne. Al you may have in your hands for stock is a sheet of paper, but you get certain benefits, voting and dividends. This lasts as long as the company does.
Items on an MMORPG are an exception. While companies do fold, this is something they try to avoid. MMORPGs (while their owners might like to keep people on them for 20 years) are seen as temporary. Not only is the game itself temporary, will it last 5 years? 10? There's the issue that individual players may typically last 1 month, 1 year or 2 years before moving to the next or going back to offline games.
Online goods aren't viewed as a permanent investment. What do people typically do as they quit a game? Some let the items cease to exist as they logout. Some give them all away. Some sell the items for in-game gold and give the gold away, in-game. Often the items may go to in-game friends, but often they are just... gone.
Also, how would the mechanics of this work? Is it just the sale of goods? Is it the earning of money? YOU GOT 3 GOLD FROM THAT RABBIT, YOU OWE US 1 GOLD! Ideally, this would be handled by as someone else posted, given the government it's fee in the same in-game currency they're taxing. The company could then raise the gold each rabbit gives, still give the player 3 gold and send 1-2 gold to the government account.
What is the exchange rate? Ix 1 gold worth 1 dollar? For all the companies that forbid real-world gold sales, can you use the current exchange rate at gold-farming shops, given this price is not recognized (and in fact actively condemned) by the owners? Is this possibly the only real reasion MMORPGs really care about these operations, that they define an exchange rate, helping the government tax this?
When you log out, will the "gift" of your items to friends be taxed? Will there be a flat "death tax"? If you didn't have much gold, will you be required to earn some (or pony up actual cash) before being allowed to quit the game?
If there is an exchange rate, where and how is this defined? Will there be a standard, legally acceptable point of exchange that *has* to accept in-game currency for cash? Sounds like a chinese gold-farmer's dream come true. This could also hurt the gold-farming business. As they flood this mythical exchange place with gold, the exchange rate veers wildly until you hae to deal with millions of gold to rack up a debt of a few pennies.
This also allows for a new kind of harassment. Someone leaving the game could, TO BE MEAN, send all their gold at once to a character they didn't like. If this came all at once, and all tax had to be paid in cash as the income is recieved, wanted or not, you could force real life tax damages against others.
Any safeguards put in place to stabilize the gold/dollar exchange rate will probably make the taxes such that on-line gamers will quit in droves, again causing a loss of revanue. When this happens, the taxes will be raised to make up lost money, which will further knock people off these games until the loss is enough to make them fold.
What happens when people find a way to hack the server and change their inventory from having 50 gold to 10,000, then sell it? Are they just kicked out by the company, or are they charged with counterfeiting.?
When you sell an item on say, Final Fantasy 11, where ownership of all in-game items is claimed by Square-Enix. (What you work for, they "own", but they don't take it way from you) does this mean when you sell the item, that Square has to pay for what you did? Does this mean two bad apples at World of Warcraft can log onto Final Fantasy 11 and sell items back and forth repeatedly to crush Square out of business with insane taxes? Consider GeoCities' one-time (do they still have it?) claim of owning what you put on your page. Should you be able to get GeoCities people tossed in jail for "owning" child porn by uploading it? This tax begs for abuse. I can see the
File under 'M' for 'Manic ranting'
A high school kid, say, who plays a lot and accumulates items worth $10k over a year will NOT have to pay 2K in income tax, correct?
Because I can see that sucking for a lot of people.
IMO, capital gains are capital gains. If you stick some amount of real-world currency into a virtual economy and out of it comes a greater amount of real-world currency, you've made capital gains which are taxable in the usual manner. It's the increase of real-world currency that should be plugged into in the usual way, and not bring real-world taxation systems into the virtual world...
I want to play Free Market with a drowning Libertarian.
The impression I get is that they're talking about buying and selling *outside* the game. If you buy a virtual broadsword for EQ gold, that's not a transaction in real money. If you buy it on eBay with US$, that is. So I don't think someone who wins a broadsword "worth" US$1000 in Warcrack is going to be liable for $1000 in capital gains or sales/gift tax ... until they eBay it.
"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."
As a side note to that, this would be the US's first Federal sales tax, or at least that I'm aware of.
I'm not sure why they didn't just create a regular sales tax if they wanted money...
GLaDOS for President 2016! "Well here we are again. It's always such a pleasure." -- GLaDOS, 2011
...because this makes a lot of sense.
GLaDOS for President 2016! "Well here we are again. It's always such a pleasure." -- GLaDOS, 2011
Does this mean that if you get a bind-on-equip epic drop, you'll have to file a W-2G form with the IRS?
"Screw Sun, cross-platform will never work. Let's move on and steal the Java language." - Visual J++ Product Manager
This will get me flamed but I don't care... I do not mind paying taxes. I am not rich, but I also understand that without being here in this country there are good chances that I wouldn't be able to make the money I do make. So they take a percentage of my check, I get some of my income taxes back. As far as other taxes like sales tax, that'll come back my way some how or other. That is just my view, I couldn't care less if I have to pay some tax on purchasing fake cash with real cash on some website. If i want to do it that tax isn't going to stop me. If you do not like the tax on a service you have many choices; voting for starters is a good one, do not use the service, or figure out another way around it. For starters if you are posting on this issue, to me you have no say unless you voted. The people whom complain about our politicians and do not vote, now that to me is moronic.
Don't play US based MMORPGs. There are several in other parts of the world, if Blizzard et al were smart they would simply move their business operations offshore. That this is even being argued when there are more than enough existing laws to cover real world money transactions is utterly ridiculous. Once someone pays money and it's deposited into a bank account the IRS can tax that already, and that should be reported under current laws. Definitely someone thinks that the Internet is an untapped source of money to be squeezed out of the public. Take games and gaming offshore, if the US then passes a law that its citizens cannot play MMORPGs that exist offshore and decide to break even more Free Trade laws (As is the case with Online Gambling sites) then screw em. The market in the rest of the world is big enough to be profitable for an MMORPG. It will open the market and cause a shift to other world players and developers out there, which will probably be a good thing.
-Gel214th
(fishes a quarter out of his pocket, the real-world value of his vast SL fortune) Don't go spending that all in one place!
"Against the assault of laughter nothing can stand." - Mark Twain
... so why be surprised the tax man gets interested?
Go check out their website. Front page there's a prominent fact box with 5 facts, and fact 4 is "US$ Spent Last 24h".
Come on, you don't need a PhD in media studies or textual analysis to see they are saying "come to Second Life because you can make money here" - whether you can or not is beside the point, they are trying to give the impression you can.
Having laid out their stall quite plainly, is it any wonder the tax authorities are going to wake up and say "oohh, so people are making money here? Well I guess we better tax it". It's a real no brainer surely - people shouting out how much money they are making in their virtual world and then getting upset because the taxman wants his cut. Income is income as far as tax man is concerned, whether you are a lumberjack chopping down trees and selling timber, a banker making money for shunting imaginary figures round on a screen or a second life trader selling enough flying pigs or worse to make real cash.
All money is virtual anyway, what's so special about this development?
That's not really the point. First of all, the "items" being sold aren't really supposed to be salable goods. Second of all, if I do sell them anyway, I'm already obligated to pay taxes because it's income I generated. The point has been made before: no matter where your income is from, whether it be from work, eBay, or selling crack on the corner, you're technically obligated to report it to the IRS and pay taxes.
Taxing players of virtual economies, assuming the tax is levied on ALL players, is effectively saying "well, these people over here broke the Terms of Service and sold goods that didn't belong to them, but since THEY didn't report it on their taxes, YOU have to pay it for them instead".
That's stupid. Supporting it is stupid.
Of course, it's all speculation, anyway.
I think that we should form a tax exclusively for the purpose of improving internet access within the US and territories. Taking the money to improve internet access here would go a long way towards putting the United States on the top of the internet game. This way, no money grubbing politicians can use the money for other purposes, and we could cut some of the costs currently associated with internet expansion.
The last page of the article is really the crux of the matter for me. In any persistent world based game I've played, my understanding is I don't own my character. I don't own his assorted Gold Coins, Magic Potions, Greater Stave of Seraph Eradication, or novelty holiday items. I'm renting that avatar and the time I spend in the game world from the company. Indeed, trying to sell those things could easily result in account termination. This may not be universal, but it is closer to the norm than something like Second Life. Especially with the games outside Asia, which tend to follow the subscription model. So in short, I can never licitly realize the value I'm being taxed on, because it would violate my contract with the parent company. Its vaguely like being taxed on the blue book price of a rental car. Hey, you just have to commit grand theft auto and sell the car to someone else. Thats an asset. The whole thing is such an illogical conundrum from my perspective. Yet, it seems to keep coming up. If only I could have any confidence that someone in congress would realize it, before they tried to turn it into revenue. Of course, this may have one advantage. Maybe if my virtual goodies are wealth, I should be able to pay my taxes with them too. Xpheyel wishes to trade with you: 270 Gold Coins 4 Silver Pieces 87 Copper Pieces 50x [Blackened Basilisk Bladder] 1x [1040 E-Z (Virtual) (Completed)]