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When Tax Day Comes to Azeroth
Posted by
Zonk
on Wed Apr 18, 2007 12:37 PM
from the i'm-a-level-30-taxman dept.
from the i'm-a-level-30-taxman dept.
1up is running a short piece originally from Games For Windows: The Official Magazine. It discusses the inevitability of taxation coming to virtual worlds, and a little bit about what that might mean in the indeterminate future: "Taxable income includes everything from tangibles like cookies to more ephemeral and subjective things like works of art, concert tickets, or advice. Those big, scary books that most sane people pay accountants to understand for them don't really narrow down what counts as taxable income so much as meticulously define it as damn near any piece of matter, energy, or information that should happen to pass into your possession over the course of the year. That goofy World of WarCraft gnome that GFW editor-in-chief Jeff Green's been leveling isn't any more intangible than, say, stocks."
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Politics: Congress to Revisit Virtual Goods Taxation 205 comments
News.com has the word that congress is set to re-visit taxing virtual goods, a concept they shelved a while back in order to consider the matter more fully. That's given the Congress' Joint Economic Committee time to come to a decision about what exactly the value of virtual goods means for players and game-makers. An economist with the group told CNet to expect their report sometime next month. "What that report will say is unknown, as the committee has kept entirely quiet about its thoughts. However, it's clear that something will happen. 'Given growth rates of 10 to 15 percent a month, the question is when, not if, Congress and IRS start paying attention to these issues,' [senior economist Dan] Miller, who is a fan of virtual worlds and economies, told CNET News.com in December. 'So it is incumbent on us to set the terms and the debate so we have a shaped tax policy toward virtual worlds and virtual economies in a favorable way.'"
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Good luck finding me IRS (Score:4, Interesting)
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If I gave you a brand new car, however, you'd be forced to pay income tax on the value or reject the gift, because there would be a simple, practical way for the government to realized you received it.
If this weren't the case, people would probably push to be paid part of their salary in food and clothing.
Bingo -- it's the sale. (Score:3, Insightful)
I think this is really how the 'taxation' in online games is going to end up working. It's like stocks right now. If I go and buy stocks (with my post-tax income), I don't pay any taxes on the appreciated value of those stocks until I go to sell them. Then, the year I sell them, I have to go back and figure out what I paid for them, to establish the cost basis, and compute the capital gain.
I don't see why a +20 "Sword of Toest
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In other words, it would cost them more to try and enforce it as it would possibly bring them.
Just wait until we all use (almost) exclusively electronic currencies and "paper money" becomes a collector's item, and you WILL see governments taxing everything imaginable... that's what they TRY to do anyway.
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Re:Good luck finding me IRS (Score:5, Insightful)
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Re:Mod Parent UP!! (Score:5, Insightful)
Also, since the value of your "money" in game isn't in actual dollars, you wouldn't be taxed on it until you "realized" the profit, meaning sell your character or account, or sell your "gold" for real money. If you never sell anything in exchange for cash, you never realize a profit. It's the same as if you own stocks and the stock price goes up. You don't pay taxes on the capital gains until you actually sell the stock. It works the same with art, etc. (AFAIK).
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Re:Good luck finding me IRS (Score:4, Insightful)
Feel free to follow the logic train...you won't be allowed to play anonymously if they tax.
-Jeff
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What's the problem... (Score:4, Funny)
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Re:What's the problem... (Score:5, Funny)
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I see no problem with taxing online games (Score:5, Interesting)
1) VAT/sales tax on the subscription and game purchase - oh they already do this don't they?
2) On in game items that are bought and sold for real money - ie a commission on in game to real life transfers.
Anything else is just pure nonsense!!
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Cashing out (Score:5, Insightful)
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If this was the case, you could account for them like Capital Gains...
Make money, pay tax.
Lose money, get tax break
Looks like everyone wins!
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You get taxed when you cash out, but you can't deduct more than your winnings as losses.
Also, the (HoursPlayed*MinWage*PercentMultiplier) is a bit of a stretch.... Unless you propose day traders start paying themselves minimum wage?
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However, if you paid someone else 5.25$ an hour then you could deduct that from your profit but you would need to pay payroll taxes on that.
Ridiculous on several counts (Score:5, Interesting)
2) There is no clear market value for any individual item or character in WoW until such time as it is "cashed out" or sold.
Taxation will come to virtual worlds, but it would be supremely idiotic to think that it would be worth anyone's time or effort to tax anything but money making transactions.
Any other scenario would see incredible resistance from companies like Blizzard. It's a programming hassle to keep track of everything as is, and now they have to maintain financial records on every denizen of Azeroth?
Majordomo: Behold Ragnaros, March has come! Perhaps we should do our taxes?
Ragnaros: TOOOOOO SOOOOOOOON!!!!!
Blizzard's already covered. (Score:5, Informative)
So, Blizzard owns your account. You own nothing, therefore, they'd have no reason to track sales. Now, a company like Linden, on the other hand, wouldn't have that loophole.
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Oh, and griphon rides? I don't use them anymore. Ever since the Alliance started charging taxes on flights the prices have been soaring out of this world. This one time, I got a flight from Stormwind, to Ironforge, and I kid you not, they charged $100 to my
Take a deep breath. (Score:5, Insightful)
Untapped Markets (Score:5, Interesting)
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.
No more tangible? (Score:4, Insightful)
Your gnome is bits on a server, and that's it. Those bits don't even represent anything in the real world; the bits are the entirety of the thing's existence. The server owners could delete those bits at no cost except your annoyance, or they could duplicate those bits so everyone on the server has three dozen exact copies of everything you own. If you can get someone to buy those bits from you, they are still buying nothing but bits. There is no connection to anything outside the world of bits, and hence the gnome is truly intangible.
I mean that's just silly. My bank account is just data on a server -- except that data represents very real, very tangible currency. Cash is no more tangible than your WoW character -- yeah right!
All this means is the same thing that it has always meant regarding taxation: The second my in-tangible, non-existent thing (my online gaming bits) is turned into something tangible (like a stock or wad of cash) then you tax it. How much do you value the bits at for tax purposes? The amount they were sold for. Simple. And we're done. We don't need a whole new section of tax code about the value of things that don't exist or even represent things that exist.
What is the point of taxation? (Score:2)
I would say that we have taxes to pay for the public infrastructure and the continuing operation of said infrastructure.
In such "virtual worlds" the infrastructure is all provided and operated by the company selling access to the "virtual world." In effect, your usage/subscription fees fill the same role as taxes do in the real world.
To the extent that the company that owns the "virtual world" also exists in the real world and makes use of public infrastructure, they
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By your argument, someone could form a market, charge people for entering that market, and claim that the government has no right to tax sales made in that market, after all, its users have already paid the owners for the infrastructure of the market.
There are plenty of reasons not to tax income and sales in virtual worlds, but this isn't of of them.
Enough? (Score:5, Funny)
Look on the bright side? (Score:2, Interesting)
But seriously... Hands off my gold!
Oh Noes! Your Game is Going to be Taxed! (Score:5, Insightful)
Nothing to see here, move along...
There are only two things in this world (Score:3, Funny)
Here's a Thought . . . (Score:3, Interesting)
This isn't that ambiguous in most situations. (Score:3, Insightful)
For example:
Not taxable: I kill a Super-Mega-Nasty-Dragon and loot the epic Item Sword-of-Greatest-Butt-Kicking. I use it to slay more vitual things, and eventually get bored and let my account lapse, I have no taxable income. Since the TOS doesn't actually allow the sale of virtual items on eBay, my item theoretically has no value, and I have received no money for the worthless item. This is no different from (from a tax perspective) from taking a $5.00 canvas, $1.00 of paint, and making a masterpiece worth millions, but hanging it up in your living room until it falls apart.
Taxable: I kill the aforementioned Dragon and sell the sword on eBay. I have now sold something and received money for it. It now has a value (because I sold it), and that income is taxable, but I could possibly deduct my monthly payment, bandwidth bills, etc., according to the normal (extremely complicated) rules for deducting business expenses. Even if though the item is not physically tangible, you have essentially performed a service for somebody (by obtaining the item so they didn't have to), and they have paid you real money for it. (Similar example: You sell 500 copies of "eBay loot-selling secrets" for $5 each. The item consists of nothing more than a
Maybe taxable: I buy the sword off of eBay, and trade the sword with somebody else for an item that goes for more money on eBay. Is that taxable? Maybe. If you make a business off of selling items on eBay, it just might be. Barter is just as taxable as cash transactions. (Although harder to compute.) If you are just a player executing a trade for something nicer, and don't sell stuff for cash, I'm going to have to say that it probably is not taxable. You are trading an intangible item with somebody else. You never receive cash money for it (or any other item), it isn't a tangible object, I don't see the income.
The IRS will eventually have to write rules on this for the "Maybe", but I don't think they will affect the vast majority of players. No cash money for items, no taxable income, and almost everybody lives happily ever after.
SirWired
I can't wait! (Score:4, Funny)
I'm going to be the first one to level the new accounting profession to 375 so I can handle peoples' online tax forms! I'll be rich! I'll have to get some investors so that I can offer advances on expected refunds and I can charge huge interest rates! Look for my new office in Org...
Why in-game taxation has to remain an option (Score:3, Informative)
One might sell a million dollar house for $900K and $100K of in-game gold, where that $100K is the amount one would have otherwise taken as real-world profit. So no real-world taxes (or maybe even a loss), and one has in-game assets that can be used to pay other tax-cheats. Few of these tax cheats would take their real-world money out of the game - since they'd then have to pay taxes - but so long as there's a stable rate of exchange, and they can exchange in-game money for heavy real-world discounts on real goods, they don't care.
And of course, since the game isn't a bank, it doesn't have the reporting requirements that banks have, meaning that it'd quickly become the favored medium for black market transactions - financing drugs and terrorism and worse.
Which explains why we will keep getting these scare stories - the government wants to keep the whole mess from ever developing, so they don't have to actually engage in the messy practice of deciding how to tax virtual profits. But eventually - probably due to movement of drug money via MMORPGs - they will have to figure out a policy.
Probably it'll be fairly reasonable - most ordinary players won't ever be bothered. MMORPG companies will be required to report any people trading "gold" worth over some black-market amount, and some subset of those people will eventually find themselves being audited, and the dollar value of any real-world benefits gained in exchange for game gold will be taxed and fines assessed.
Re:Frist Psot (Score:5, Informative)
Blizz claims ownership of the items, thus it would be illegal for them to tax you on something you don't own.
Remember, you licensed it, you don't own it.
Tax time in WOW is stupid and will never happen. OTOH, Tax time in second life is a possibility.
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Re:Frist Psot (Score:4, Insightful)
They are taxing the income, not the asset. If I sublet my apartment, I can be damn sure the government will tax that income.
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Re:Frist Psot (Score:4, Funny)
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I just got through saying that that's precisely what they're not taxing. Pay attention, son.
Doesn't matter. (Score:3, Interesting)
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But as long as that "wealth" stays online and never gets exchanged for real money coming into my pocket, stay the fuck away from my ISK and T2 blueprint copies
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They're the exception however, but I would imagine the beancounters don't care. They see money slipping past them, and will cast as wide a net as possible to try and halt it.
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But then again, if that happends, I do expect the governments to FORCE the MMOG companies to acknowledge in-game property as actual, personal user property, and allow in-game assets "conversion" to real money at any given time (as per supply and demand from other customers, not from the game company).
However, the actual value of the goods should be set as "zero" for ownership taxes only, so th
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You can't assess a value on an item in a game without that item having been converted into actual currency...The markets fluxuate too rapidly.
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I'm looking forward to tax-deductible charitable ISK donations to newbies, and anti-monopoly real-life lawsuits for T2 BPO owners
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Re:Blizzard owns the characters (Score:4, Informative)
We'll never have to pay taxes on things we don't own.
If you sell something you don't own, and you pocket the profit, you still owe taxes on it. If you steal car, and then sell that car, you can be convicted of tax evasion unless you pay taxes on the profit, with your "cost basis" correctly set to $0. Yes, this is true even if you are separately convicted of the theft.
If I go to the library and rent a really popular book, and the next person on the waiting list offers me $250 to give the book to him, I would need to pay tax on that income. The book never belonged to either of us; he'll still have to return it to the library when he's finished with it.
In short, it's not "We'll never have to", it's "We already have to".
Which of course makes this "Not real news because existing laws apply" .
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