When Tax Day Comes to Azeroth

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."

Good luck finding me IRS

Suppose i pay for my mmorpgs with game cards and use proxies to connect tot he game servers. how then can anyone be expected to track how much gold i have accumulated on my virtual d00d? I can see taxing the sale of virtual goods for real money (not that i agree with it), but it seems silly to expect purely in-game assets to be taxed.

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Hmm, yes... scamming the IRS... ALWAYS a good plan.

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Hm. Wouldn't they only have to pay on the profit they made if/when they sold them?

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Technically, their cash value counts as income. Realistically, they'll be overlooked until sold because there's no way to track them.

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 wo

Bingo -- it's the sale.

Hm. Wouldn't they only have to pay on the profit they made if/when they sold them?

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 pa

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Parazphrasing from TFA, "they're not doing it any time soon, and only because it would be a monumental pain in the ass right now".
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 (almo

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Not to mention which tax office is going to do the hunting? I live in Europe, the servers are in the US, and I trade with Japanese people. Who's going to get the tax?

Re:Good luck finding me IRS

If they tax it, you can claim the subscription fee as a business expense.

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Actually - the tax hobby loss rules, would not allow that. You need to show the IRS that you are engaged in a business for profit and not just a hobby to claim losses in excess of revenue. As a hobby - you can only claim expenses to the extent of revenue

Re:Mod Parent UP!!

True, but back to the original article, unless you made income in the game that was more than the monthly fee you're paying, you'd never have to pay any tax.

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).

Re:Good luck finding me IRS

You are a fool. They will ask blizzard who you are.

Feel free to follow the logic train...you won't be allowed to play anonymously if they tax.

-Jeff

What's the problem...

With having tax collectors in the game that players can beat up and rob?

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They'll allow the IRS avatars be like Everquest's umpteenth-level in-game guards.

Re:What's the problem...

Ooooh... Can they be all called "Smith"?

I see no problem with taxing online games

As long as its one of 2 ways

1) VAT/sales tax on the subscription and game purchase - oh they already do this don't they? :) (not to mention tax on electricity usage, network connections staff wages and all the other costs the company incurs, oh and on their profits if any)

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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Agreed. The game crosses from entertainment to asset when you sell something for real money.

Cashing out

The intangible gnome may be something ephemeral that comes in to my possession (in the sense that it is under my control) but if the analogy is to stocks, then wouldn't it make sense to be taxed when I cash out? I mean gains in the stock market aren't taxed until the stocks are exchanged for money and a capital gain is realized. The funny part really comes later in the discussion when people agree with the concept seemingly based on the idea that anything which causes joy should result in negative consequences.

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If this was the case, you could account for them like Capital Gains...

• Cost = (SubCost * MonthsOwned) + (HoursPlayed * MinWage * PercentMultiplier)
• Value = (EbayProfit)
• Gain = (Cost - Value)

Make money, pay tax.
Lose money, get tax break

Looks like eve

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It'll end up being more like gambling...

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 themselv

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As a self employed person you can't deduct the value of your time from your gain otherwise you could work for someone at 25$ an hour say your worth 25$ an hour and pay no tax.

However, if you paid someone else 5.25$ an hour then you could deduct that from y

Ridiculous on several counts

1) WoW players pay Blizzard for service and access to data on their servers. The ownership of said data never leaves Blizzard.

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.

Many people forget this, but when WoW first came out, people were up in arms about their Terms of Service [worldofwarcraft.com]. Specifically, the ownership clauses:

2. Ownership

All rights and title in and to the Program and the Service (including without limitation any user accounts, titles, computer code, themes, objects, characters, character names, stories, dialogue, catch phrases, locations, concepts, artwork, animations, sounds, musical compositions, audio-visual effects, methods of operation, moral rights, any related documentation, "applets" incorporated into the Program, transcripts of the chat rooms, character profile information, recordings of games played on the Program, and the Program client and server software) are owned by Blizzard or its licensors. The Program and the Service are protected by United States and international laws. The Program and the Service may contain certain licensed materials, and Blizzard's licensors may enforce their rights in the event of any violation of this Agreement.

8. Ownership/Selling of the Account or Virtual Items.

Blizzard does not recognize the transfer of Accounts. You may not purchase, sell, gift or trade any Account, or offer to purchase, sell, gift or trade any Account, and any such attempt shall be null and void. Blizzard owns, has licensed, or otherwise has rights to all of the content that appears in the Program. You agree that you have no right or title in or to any such content, including the virtual goods or currency appearing or originating in the Game, or any other attributes associated with the Account or stored on the Service. Blizzard does not recognize any virtual property transfers executed outside of the Game or the purported sale, gift or trade in the "real world" of anything related to the Game. Accordingly, you may not sell items for "real" money or otherwise exchange items for value outside of the Game.

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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Yeah, I got one of those Epic drops from that Huge boss at the end of that massive Raid, but I had to pass it up, because the taxes would have killed me. Turns out that they would have charged me $1,000 in tax on the item... that just wasn't worth it.

Oh,

Take a deep breath.

Despite that fact that every gamer site & mag likes to get all fud-tastic in regards to MMO taxes, let's use our brains for a second. The only time that a tax would be applicable would be if real-world money changes hands. Selling gold / items / characters for money? You'd get hit with a sales tax or have to report this as taxable income. It might "suxxors," but if you can make a living by gold farming, then I'd certainly expect you to have to pay your taxes, too.

Untapped Markets

I'm going to repost what I said the last time this came up (Two weeks ago):

Taxing people on real dollars earned is nothing new. It doesn't matter how the money is earned. According to US law, anyone who "ebaY's" their WoW wealth owes taxes on the money received. If you try to cross the line between real and virtual "value", you open up a Pandora's box that would be hard to close.

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.

Yeah, that still sums up the issues in my mind.

No more tangible?

Please! A share of stock is ownership of a piece of the company. It gives you the right to vote on decisions made by the board of directors, and it may entitle you to receive dividends based on the company's profits. There are limitations on a company's ability to issue new stock. These are the reasons why stocks are tangible and have value. Yes, your stock is probably just bits on server that keeps track of how many you own, but those bits represent actual ownership of an actual company. When someone buys my stock, they are paying for that ownership, not for the bits that represent that ownership. This is quite tangible.

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?

Why do we have taxes in the real world?

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 a

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> I would say that we have taxes to pay for the public infrastructure and the continuing operation of said infrastructure.

By your argument, someone could form a market, charge people for entering that market, and claim that the government has no right

Enough?

Haven't [slashdot.org] we [slashdot.org] discussed [slashdot.org] this [slashdot.org] enough [slashdot.org]?

Look on the bright side?

If an asset is important enough to be taxed, than it must be of enough value to be considered an item of value in the civil and criminal courts.

But seriously... Hands off my gold!

Oh Noes! Your Game is Going to be Taxed!

Honestly, the only thing that's being taxed here is my patience. Taxing in-game assets at any time other than when you cash them out would be retarded, and if you're a US citizen you're supposed to pay taxes on that transaction when you cash out anyway.

Nothing to see here, move along...

There are only two things in this world

There are only two things in this world that you cannot escape: taxes and the wow graveyard

Here's a Thought . . .

You've heard the likes of Steve Forbes say that a flat tax would work wonders for the U.S. Why not use a virtual world setting to test it out? That is, have a virtual world where there is progressive taxation, and another where there is flat tax. Then, measure the effects. I mean, why not use virtual worlds to test out various economic theories?

This isn't that ambiguous in most situations.

If you receive "real-world" income for your MMO loot (i.e. eBay), than of COURSE that is taxable income, just as much as tips for juggling on a street corner are taxable income. If you never get money for the loot, and the trading of loot for eventual real-world income is not a business of yours, then it is not taxable.

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 .pdf file, but you have received money for it. The sale of the items are most certainly taxable.)

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!

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

If the government decided and declared, once and for all, that it would not tax in-game virtual transactions, people could start using MMORPGs to hide real-world profits.

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

Just show them your EULA.

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.

Re:Frist Psot

> it would be illegal for them to tax you on something you don't own.

They are taxing the income, not the asset. If I sublet my apartment, I can be damn sure the government will tax that income.

Re:Frist Psot

Sure, but my epic gear is on my character and soul bound, I can't sublet it. I draw no income from owning said gear(which as we have established via the EULA, I do not actually own). In fact, if they really wanted to tax me on it, they would end up owing me since my Wow habit is a total loss. In which case I would deduct my monthly fees for my account, the electricity to run my machine for the hours I played that year(statistics which are easily obtainable), then theres the matter of the costs of my internet connection. How about depreciation? The gear I got a year ago is not worth the same as the gear you can get today. Do I get to claim deprecation losses? They can't have it both ways. If you want to tax my virtual possessions, make sure that I am actually gaining income otherwise I get to claim it as a loss.

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> If you want to tax my virtual possessions

I just got through saying that that's precisely what they're not taxing. Pay attention, son.

Doesn't matter.

It doesn't matter if you own it or not - this is income tax, not property tax. If you receive a good or service in exchange for another good or service, then it is possible that it could be taxed as income. But I really don't think that is going to happen.

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As soon as in-game wealth CAN be used as an actual source of income in the real world, I have no problem with it being taxed.
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

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There do exist people who have made a living off selling in-game items and money. Most people who have been able to maintain a living off this sort of "work" aren't really playing the game anymore, it turns into a job for them and they work at it just as h

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I don't have a problem with virtual jobs for real money, and I don't have a problem with the government taxing that.
But then again, if that happends, I do expect the governments to FORCE the MMOG companies to acknowledge in-game property as actual, persona

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That's exactly how it works with stocks (except in the case of stock dividends), and that's pretty much what they're talking about.

You can't assess a value on an item in a game without that item having been converted into actual currency...The markets flux

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Heh, good one. Next thing you know, they'll increase sales tax to around 2% minimum and even 10% max without skills, and file tax returns for you. But then again, this would mean the EVE economy must first become a realistically modeled economy (bye bye si

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Hey, look on the bright side, at least you can sue WoW for paying you below minimum wage. Oh, and look at the state of your home: ~*~OSHA violation~*~! Ca-ching!

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The government can... you know... make laws. Some could make certain contracts illegal. So they can make laws invalidating those parts of the contract.... Especially since there might be money in it for the government.

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First of all, in the US illegal for-profit activities are taxable. Al Capon is the example that people usually use to prove that point. And don't forget that most illegal imigrants who work here illegally pay taxes (they don't have a choice but to sneak

Re:Blizzard owns the characters

Regarding real-world sales of in-game items only:

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" .