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The Almighty Buck Government United States Entertainment Games Politics

Decision on Virtual Taxation Coming Soon 52

Posted by Zonk from the only-two-things-are-certain dept.
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."
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Decision on Virtual Taxation Coming Soon More

Decision on Virtual Taxation Coming Soon

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  • ... 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.
    • 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.
      • 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...

    • Re: (Score:1)

      by bakana ( 918482 )
      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.
  • Trust the government to leech off anything remotely successful. I guess they need the money to feed the national debt monster...
  • ...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
    • But this is already taxed if you are making money doing this. The IRS has never cared where the income comes from as long as it is income. Income is taxable unless it is specifically designated as tax free in the tax code. This includes bribes for committing illegal favors and proceeds from drug sales.

      Virtual trades in the virtual world which aren't ever traded for real world goods, services or items are completely nontaxable. Services is the one which is the most likely avenue, but even then if it isn't a
  • 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.
  • 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.

    • 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'.

      Unfortunately, I am pretty confident that the "ZOMG, M0R3 TAXX MONIES!!!!!!11" instinct of politicians will overcome any such common-sense approach to what kind of changes should be made to tax codes...

  • Risky move (Score:3, Interesting)

    by NetDanzr ( 619387 ) on Saturday August 04, 2007 @03:40PM (#20115223)
    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 [wikipedia.org], 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.

    • Re: (Score:2)

      by hany ( 3601 )

      Another, and very old IMO, "alternate currency" is barter: I give you some amount of something, you give me some different amount of something else and no exchange of money occurs. Of course, it's harder to barter than to "shop regularly ... with money".

      Plus also any tax office may argue that it does not matter whether there were money involved - business transaction occured: there was an exchange of things which had some value. So they claim they are eligible to want tax derived from that value, money or

  • CA does not tax SL; neither should USA (Score:3, Informative)

    by Randym ( 25779 ) on Saturday August 04, 2007 @04:01PM (#20115383)
    Therefore, transactions where players pay real money for in-game currency or virtual items are taxable events.

    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 [secondlife.com] nor the membership plan page [secondlife.com] nor the pricing plan page [secondlife.com] nor the billing policies [secondlife.com] make any reference to any included taxes.

    The California Tax Service Center page [ca.gov] 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) [elsop.com]}.

    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.

    -----

    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 [cornell.edu]) 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" [google.com], 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" [thinkexist.com].)

  • ..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.

    • Re: (Score:2)

      by vux984 ( 928602 )
      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.

      Right because people who don't cheat in World of Warcraft are going step up and cheat because now they can contribute to ruining the economy, or at the very least can break the rules of the game, for a good cause.

      And better still, they get to support 'playerauctions.com' which is pretty much the poster child for the very gold-farming scum they
  • 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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  • 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? Ther

    • Re: (Score:2)

      by mark-t ( 151149 )

      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.

      Actually, it would probably be handled by simply not allowing a character to receive any items without their player actively saying that they accept the item. Also, it would make the most sense that, if

  • If they tax them, then the companies that run them can't ban their sale anymore, as a some MMO's are accustomed to doing.

    "virtual goods have been shown to have real-world value."
    Only to people that were willing to pay said real-world amounts. Some people are willing to pay for sex too... does that mean that people should be taxed every time they engage in said activity?

    • Re: (Score:2)

      by hany ( 3601 )

      Some people are willing to pay for sex too... does that mean that people should be taxed every time they engage in said activity?

      Well of course: yes, it does mean precisely that! This "free sex" should be taxed (if not outlawed straight away as it's just "free prostitution").

      And can you even imagine the amount of money of which the state treasuries all around the world are injustly deprived of because some scumbags like me are having "free sex" with their wive/girlfriend/whatever?

      But of course I'm joki

      • Re: (Score:2)

        by mark-t ( 151149 )
        My point is that something only has real-world value to people who are willing to really pay for it. Period. How can you _possibly_ assign real-world value to things that a majority of people would not even be willing to pay for to get in the first place?

        • Re: (Score:2)

          by hany ( 3601 )

          How can you _possibly_ assign real-world value to things that a majority of people would not even be willing to pay for to get in the first place?

          Well, ask for example RIAA how they come-up with a $700 or so per pirated track.

          Logic such as used by them is beyond me thus I agree with you.

          • Re: (Score:2)

            by mark-t ( 151149 )
            That's a red herring. That $700 is not assigning a real-world value for tax purposes, that's trying to determine what would be an appropriate penalty for breaking a particular law.

            • Re: (Score:2)

              by hany ( 3601 )

              OK, I'll rephrase my example:

              Well, ask for example RIAA how they come-up with a US$ 6 billion loses from what they call piracy.

              • Re: (Score:2)

                by mark-t ( 151149 )
                Your example still has nothing to do with taxation. Taxation exists to provide funding for an infrastructure.
  • 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.

    • Re: (Score:2)

      by mark-t ( 151149 )
      The only way it could be practically implemented is by having the taxation built into the subscription fee... paying over and above the basic subscription cost to obtain a credit, and if the amount of credit that you have doesn't cover the taxes for an item, then your character couldn't own that item. You wouldn't even be able to give such items to anyone who didn't have enough credit to own the item.
  • 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...
  • 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.
    • ...because this makes a lot of sense.

    • Re: (Score:2)

      by mark-t ( 151149 )
      Well the income from the stuff that you sell on ebay you are supposed to declare as income anyways, if it exceeds a threshold amount per year. Not doing that is already tax evasion, whether the goods are real or virtual.

      • Re: (Score:2)

        by argent ( 18001 )
        Hence my question... what exactly is it that they're proposing to tax that isn't already covered?
  • 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?
  • 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
  • (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!
  • ... so why be surprised the tax man gets interested?

    Go check out their website [secondlife.com]. 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 s
  • 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 l

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