Taxes, Second Life and Warcraft 441
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."
Only one answer (Score:1, Insightful)
BULLSHIT
That pretty much nails it on the head. (Score:5, Insightful)
Don't tax me just because I have 10k in gold in WoW... But if I sell that for the $1,600 or so I could get wholesale for it, then it's income and I should give unto ceaser and all that..
Re:Only one answer (Score:4, Insightful)
What's the story here? (Score:5, Insightful)
Am I missing something here? So you make real money for selling a virtual product. I don't see this any different from paying real taxes on other virtual products in the past such as profits gained from 1-900 numbers. Why is there even a question as to the taxation of these funds?
Re:Only one answer (Score:5, Insightful)
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.
If the activities take place only in a virtual world, and the entire transaction is carried out within the private sector and without government involvement, then precisely why should they be taxed?
The truth of course is that there is simply less government involvement. Thus such transactions should be carried out at a reduced tax rate.
Re:What is this bitch smoking? (Score:3, Insightful)
Right. Just like illegal drugs have no market value, and nobody's ever been busted for income tax evasion because they didn't report their drug dealing income...
-Esme
Re:That pretty much nails it on the head. (Score:5, Insightful)
The problem is that under that principle, investors could evade taxes. Basically, investors have long salivated at the thought of deferring taxation of all intermediate gains (reinvested dividends) until spent on consumption. (Yes, you can do this with retirement accounts, but I'm talking about once those are maxed out.)
If you exempted those good-as-money gold transactions from taxation, investors could do something similar. Basically, they could set up "pseudo-dollars" that are instantly redeemable for real dollars (and vice versa). Then they would be exempt from dividend taxation until they want to spend the dollars on consumption.
Now, I actually support the idea of allowing deferral of taxation on dividends that are re-invested, but I just wanted to point out the problem (from the IRS's standpoint) of exempting WoW gold.
This is not hard (Score:5, Insightful)
It really is just that simple. You don't pay tax on what you do in game, any more than you pay tax for coding on your computer. You pay tax when you sell something in game. If your time spent in game is not for profit, there's no tax. Likewise if you write something and release it in to the public domain there's no tax.
This is not a hard concept, and from everything I've seen the IRS agrees. They want people to report profits made form games, just like they want profits from eBay and so on. However no, they aren't going to start taxing items in the games themselves, that makes no sense.
This doesn't require an economics degree, doesn't need all kind of theory related to what the game is like and so on. When you make money, you pay tax. No money, no tax.
Re:That pretty much nails it on the head. (Score:3, Insightful)
You're missing an important point.. (Score:3, Insightful)
It's insane!
Re:Only one answer (Score:4, Insightful)
Anyway, you get the idea.
Bwahahaha (Score:2, Insightful)
Re:Write Offs (Score:1, Insightful)
Re:This is not hard (Score:3, Insightful)
VISAbucks (Score:1, Insightful)
The issue is not one in which I go create some must have item for second life - sell it - then convert that to real money. The issue is what happens when money stays in Second Life - but is used to purchase in real world items. To use an example - say I run a business selling clothes in second life - and I have employees who help me create and sell second life clothes. We then sell those clothes in game, earning lindens. However I pay my employees for their time (time is a "real" resource) *in lindens*. I have not paid them in US cash. Thus even if the lindens were to be immediately exchanged for US cash we did not the various taxes on "real" income such as social security. Take the example a little farther - now not only do I pay them in lindens - they pay other retailers in second life for out of game items - say real clothes - in lindens. Out of game no money changes hands - there is nothing to tax. Carried to its logical extreme all monetary transactions could be handled by linden labs - all tax free. Its also backward compatible - if you want to buy something which does not accept lindens you simply get your lindens exchanged for dollars.
This is not a scenario that government in general is prepared to handle. Unfortunately for them there is no technical reason why something like this could not be done. Even if its not a game currency whats to stop say
Re:Only one answer (Score:3, Insightful)
doh - maybe because money ISN'T changing hands until you actually "cash out"?
Earning value (Score:3, Insightful)
Devil's advocate time...
a) Real money is taxable.
b) You can sell virtual gold for real money.
c) Virtual gold therefore has value.
d) Receiving something of value is taxable as income. Example, if you win a car worth $20k, you have to pay income tax on that $20k. Or if you win a trip to outer space worth $200k, you have to pay taxes on that $200k.
e) Therefore, receiving gold in game is taxable.
For second life, it's almost obvious. Since you can transfer dollars to lindens easily and legally those lindens obviously have value.
For WoW, it's not as obvious, but the same argument holds.
Luckily... if I earn 2000 gold in WoW, then spend that 2000 gold on repairs, consumables, gear, etc, I should be able to write the value of that gold off making it a wash. (2000 gold earned, but 2000 gold spent) Or even better, if I start the year at 2000 gold, and end the year at 500 gold, can I claim a loss?
Re:That pretty much nails it on the head. (Score:3, Insightful)
Every MMO out there has a user agreement that lets them shut down your account for any reason, and no company is dumb enough to take legal responsibility for safeguarding your in-game currency. Second Life is doing some weird stuff with the ownership of in-game assets, but if they ban your account, they're not going to cut you a check for the real world equivalent of your game money.
Even if you're not worried about your money flat out disappearing, don't forget that MMO economies have all sorts of built-in ways for the game developers to influence them, in drastic ways that the fed only wishes it could affect the US/global economy. Inflation, deflation, and in-game taxation can be very unpredictable, and truly could change at the whim of a single individual. No one intelligent would put serious money into a situation like that. If I ran a game and suspected of people using it to harbor money from taxes, I'd be awfully tempted to mess with them, just for being so dumb.
Re:Only one answer (Score:3, Insightful)
Re:Only one answer (Score:3, Insightful)
Re:Only one answer (Score:4, Insightful)
Deductions for my World of Warcraft monthly fees?
Deductions for my ventrilo server?
Deductions for the costs incurred in developing a SL object?
etc
I don't think anyone has really taken a look at that issue, but much of it is already covered under existing US tax laws (business expenses).
And if I cash out less than what I originally put in, can I write off the loss?
Re:Only one answer (Score:5, Insightful)
http://www.thirdworldtraveler.com/Rachels/The_Cor
So you have two groups of people (citizens and government employees) who sorta, kinda want to tax fairly and one group of people whose entire purpose for existing is to push those costs on to the other two. Who is going to win in this struggle?
Our problem with b) is that if you want a swimming pool and I do not. And I want a recycling program and you do not, we both end up with a swimming pool and a recycling program. Extend that to 300 million individuals and you end up with all sorts of wacky stuff. I think you would get a better result if you fixed the tax rate (which would require a constitutional amendment) and then let everyone scrabble over that fixed amount.
And then we have the problem of words.
If we say we tax activity "A", then people doing that activity find a way to change it just a little and then call it activity "A1". That applies in this case. Likewise, if we had a constitutional amendment limiting taxes, they would define a new word (usage fees, service fees.. who knows) instead of the word "tax" to get around the amendment.
You have people working 8 hour shifts to make a product that they sell for real money to consumers. But because it is phrased as "playing a game", they have managed to get away untaxed.
Likewise the gambling issue in S2 where lindens could be won gambling and then sold for real cash.
And let's turn it around... Say I start mowing lawns for 100,000 platinum in EQ? That's $21 value for a lawn mowing but it's just "EQ Plat", not "real" money. It takes me about 120 hours to earn 100,000 platinum so it's a very good deal for me, removes taxable liability.
The more virtual worlds we have- and the more time people send in them- the bigger this issue becomes.
I don't go to a real movie, out to eat, or to a real ball game- instead I spend 30 hours in a virtual world that week. Provided food, a place to live, and a good computer/network connection I could probably go 10 to 15 years doing almost nothing as far as the real world is concerned.
It's a fascinating issue.
Re:Only one answer (Score:5, Insightful)
a) I think you give citizens and government employees way too much credit. They, too, are self-interested and intend to enrich themselves at the expense of everyone else.
b) I think your characterization of corporations as being *for the purpose* of externalization of costs, is misleading. Yes, it is possible (though rare) that a corporation can impose costs on others that its current assets can't compensate for, and the victim could be stiffed while wealthy silent partners (passive shareholders) are immune. But this happens all the time with poor criminals. Johnny Thug kills someone and doesn't have to pay a dime (because he's too poor to be worth suing) and gets his incarceration paid for by his victims. To the extent that we can't enslave him to pay compensation to his victims, is that too an externalization of costs?
This is hard (Score:2, Insightful)
It does make sense to tax items in game, it just is that we haven't reached that point yet. Spend hundreds of hours in WoW getting gold to spend on things in game? Is using that gold to buy a Sword of 1000 Truths really different from using that gold to buy a piece of software which is equally "virtual"? If you setup a shop in game selling software for gold, should you be exempted from income tax just because you're receiving gold (a cash equivalent) instead of cash?
Deferring taxation until the gold is sold for dollars is equally problematic. There are a huge number of tax shelters out there that exist simply for deferring taxation - time equals money. That money could be sitting in an investment earning dividends for you rather than going immediately to the IRS. The entire benefit of a traditional IRA is that you aren't taxed on the money until you take it out. Under the scheme espoused by a lot of
None of the US virtual economies are stable enough that people are using them to tax shelter, but that is a very short-sighted criticism. A number of Asian "virtual" currencies can now be used to directly exchange for goods and services outside of any game context.
Re:Only one answer (Score:3, Insightful)
Re:Only one answer (Score:4, Insightful)
b) this is silly anyway because we all know that corporations exist to separate the corporate offices from responsibility. There is no other need for them to exist.
Re:Only one answer (Score:4, Insightful)
Taxing virtual income is pure insanity; taxing real income generated from virtual goods or services rendered only makes sense.
Re:Only one answer (Score:4, Insightful)
OK, so life isn't fair. But that doesn't mean that we can't try to make it better. It's a fallacy to think that the only reasons that someone won't have put aside money for retirement or healthcare are stupidity or poor planning; recent research has shown the US to have lower social mobility than a lot of developed countries - should we really punish people for being born into a poor family? And as I pointed out before, people from minorities are massively over-represented by those under the poverty line - are they just stupider?
If you really succeed - whether by working hard or by being born into money and power - you will be in the top tax bracket. You will pay 35% tax on an income of at least $336,551, leaving you $218,758 per year to live on. You've taken a hit, but you're still not going to be groping behind the sofa for food money - and by European standards this is very low taxation. On the other hand, if you make $11,340 a year, with 2 dependant children, you will receive $4,536 a year in assistance through the EITC scheme. This is quite possibly the difference between eating and not eating. (again, by European standards, this seems very low; even in the UK, which has a comparatively conservative policy regarding benefits, the same family would receive $8,200.) Now take into account John Rawles' veil of ignorance; imagine you haven't yet been born and have no idea where in society you will end up. You have (rounding to the nearest integer) a 22% chance of earning less than $12,500 and a 43% chance of earning less than $25,000. Your chance of earning more than $50,000 is 29%. Things look even worse if we take into account other possibilities - what if you have an accident, or are unemployed? Nationally, you have a 4.8% chance of being unemployed, roughly the same as your chance of earning over $100,000. If you were making your decision based on these chances, rather than in the knowledge that you aren't in a position to need Government assistance to stay alive, would you still think that people shouldn't have to lower their living standards to put food on someone elses plate - despite the fact that otherwise, that plate might be empty?
Re:Only one answer (Score:3, Insightful)