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."

Comments

Risky move

[NetDanzr]

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.