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Role Playing (Games)

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."
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Taxes, Second Life and Warcraft

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  • Re:Only one answer (Score:4, Interesting)

    by Atlantis-Rising ( 857278 ) on Monday April 09, 2007 @11:17AM (#18663395) Homepage
    You mean you don't realize that money is taxed at every step where it changes hands? This is how it has always worked- why should the internet be any different?

  • by Anonymous Coward on Monday April 09, 2007 @11:19AM (#18663437)
    Hypothetically, I could live in Canada while the WoW servers I play on are housed in the U.S. but do business with a guy in Germany whose playing through a proxy in France.

    OK, so thats a bit of an improbable example.

    Try this on: In Canada, I can buy computer hardware from Alberta - which has no provincial sales tax - and have it shipped free to my house in Ontario - which has some of the highest provincial sales tax in the country - and pay (*drum roll please*) zero provincial sales tax. Thats not improbable; it's real. I built my last computer using components I purchased in this way. I'm sure lots of people in lots of countries do this. This is because governments cannot rightly decide where the tax needs to be applied, and frankly, the federal government cannot force any province to implement a sales tax to solve the problem.

    So whose tax laws apply, and how do we enforce them?

    This article might work in theory, but rarely do authors like this think about real world application.

    Sadly, they often end up in government.
  • Re:Only one answer (Score:5, Interesting)

    by UbuntuDupe ( 970646 ) * on Monday April 09, 2007 @11:23AM (#18663501) Journal
    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. ...The truth of course is that there is simply less government involvement [in MMORPGs].

    Oh, I basically agree, but this opens up a new can of worms: it commits you to:

    a) separating businesses based on how much government they use, and taxing them differently (at least to a coarse approximation)

    b) taxing the economy *only* at the rate required for the government provice the services needed for it to exist.

    a) isn't so bitter a pill to swallow, but b) means much, much lower taxes, since very little tax revenue is spend on ensuring the necessities for the modern economy to exist, at least when honestly appraised. For virtually every government program, you can find a country that does without it, or has much less of it. (I can't sell items on ebay unless the government has a presence in Iraq? Come on!)
  • Re:Only one answer (Score:5, Interesting)

    by jandrese ( 485 ) <> on Monday April 09, 2007 @11:30AM (#18663623) Homepage Journal
    In fact for games like WoW that is the only way I can see that you would be able to tax it, since there is no generally agreed upon standard for converting WoW Gold into US dollars. Third party out of country gold farmers do not make for a nationally recognizable conversion rate.

    Secondlife however has a money market and maintains an up-to-date exchange rate of Lindon Dollars to US Dollars. It would be entirely possible to tax earnings in Secondlife in real dollars, although 99% of the time the tax would come out to pennies per month (effectively not worth the government's time), some of the larger Land Barons however could easily make enough to have to pay taxes on it.
  • by RichMan ( 8097 ) on Monday April 09, 2007 @11:38AM (#18663725)
    So I play WoW. My time investment becomes unrealized gains as I have not made a real world transaction.

    Then my account gets hacked. All my stuff destroyed and definitly converted to real world market value.

    Does this mean I get to declare a loss for tax purposes?

    Also this means that online time is creating value.
    This would mean your payments to play are deductable.
  • Re:Only one answer (Score:5, Interesting)

    by Dachannien ( 617929 ) on Monday April 09, 2007 @11:41AM (#18663775)
    The term "virtual world" should not be taken literally. It's not like these people are playing from their apartments on Mars or something. They are in the real world, and where their virtual actions touch real world money, the government has a legitimate interest in recouping its expenses, e.g., law enforcement concerning online fraud. This is what's meant by "commercial"

    Where transactions are purely virtual - i.e., the transaction does not touch real money - the transaction has zero value in the real world, and the taxes should also be zero. But if you're talking about RMT, whether it's sanctioned by the game developer (Second Life) or not (most MMOGs), then the transaction is no longer purely virtual.

    This isn't exactly what the article author indicates - she believes that if you are dealing in Lindens, then you're essentially engaging in barter with intangible property - but I would argue that Lindens are worthless until there is an interface with a non-virtual good, service, or money, and that's the point at which tax could be assessed.

    Whether or not from a public policy perspective it's a good idea or not to tax online transactions is another question entirely (e.g., tax moratoria, etc.).

  • by nickname225 ( 840560 ) on Monday April 09, 2007 @11:51AM (#18663945)
    I'm an attorney and I do some work in the tax area. Your thinking is not the way that tax works. The rule is - you are taxed on all income from whatever source. Income is the receipt of anything of value. As long as the value is reasonably determinable, you are taxed on that value. If the value is not reasonably determinable, you are taxed on it once the value becomes reasonably determinable. Of course, if you play WOW and earn income, it is as a small business, not as an employee. So all your costs, such as fees to play, and a portion of the depreciation on your computer, and a portion of your internet service fees, etc are deductible against that income. Then you get into a sticky question - if you buy a special weapon, to help you earn more gold - it is a capital expenditure and must be amortized - so what is the amortization period of a virtual weapon? Best thing to do - is not hold it past the end of the calendar year and dispose of it at a loss and take the full loss as a deduction against your WOW earnings. In practice, I think, few people when looked at in this light are profitable playing WOW. But beyond a doubt those who are are subject to the tax laws, although it will not prove profitable for the IRS to pursue these cases, since the amount is so small.
  • Re:Only one answer (Score:5, Interesting)

    by pinkocommie ( 696223 ) on Monday April 09, 2007 @12:46PM (#18664763)
    Isn't that a good thing, a honest appraisal of what you're being taxed for? come tax day
    1. $2,400 for your share of the Iraq war (guesstimating 50 million tax payers, 1 in 6 people , 120 billion budget sent to the president at the moment)
    2. $1,120 for education (56 billion / 50 million)
    3. $8,400 for the department of defense (420 billion excluding war spending / 50 million)

    If people actually realized what the government spent money on, it would be a little easier to have them put a stop to frivolous spending and costly wars. Not to mention selling a war with a cost of $1,000 tops with cashbacks (oil sales) of most of that and then an annual cost upwards of 2000 dollars would've had the average voter thinking whether it was worth it or not versus sending others kids out to die. [] ractives/budget06/budget06Agencies.html []
  • Re:Only one answer (Score:3, Interesting)

    by cayenne8 ( 626475 ) on Monday April 09, 2007 @12:52PM (#18664833) Homepage Journal
    "It's also the only place to go at 3 AM when you decide it's a good time to get some coffee and disco fries..."

    What are "disco fries"?

  • Re:Only one answer (Score:4, Interesting)

    by UbuntuDupe ( 970646 ) * on Monday April 09, 2007 @01:08PM (#18665033) Journal
    Isn't that a good thing, a honest appraisal of what you're being taxed for?

    Well, yes, but I was referring to an honest appraisal of the necessity of specific government programs to specific economic activities. People typically put up the false dichotomy of "you don't like being taxed at 95%" (the marginal rate in some times and places)? Well gee, I guess you think we should disband the police!" My point was just, that this justification of taxation is flimsy: the tax doesn't need to be that high, and the transaction doesn't require each and every government program that exists. Please folks, just admit that you're using a taxpayer for another purpose, even if it is ultimately justified!
  • Re:Only one answer (Score:3, Interesting)

    by drinkypoo ( 153816 ) <> on Monday April 09, 2007 @01:45PM (#18665539) Homepage Journal
    It's not about the shareholders, at least to me (although they certainly share in some of the blame, I'm not sure you can reasonable assign them responsibility) but the corporate officers. They only seem to get in trouble when they piss off the IRS. Makes you wonder what would have happened if Al Capone had found a way to pay taxes.
  • Re:Only one answer (Score:4, Interesting)

    by Kijori ( 897770 ) <> on Monday April 09, 2007 @02:18PM (#18665981)

    Many of us do NOT believe in the all powerful Nanny state. We believe that we can do many things, like provide for our own retirement, health concerns more efficiently if we keep more of our own money, and invest and save it towards such things.

    This works rather nicely if you assume everyone earns enough money to provide for their own retirement and healthcare; this simply isn't true. Taking a look at America, the self-styled champion of this Conservative ideology, 10.5 percent of elderly people are living below the poverty line - and this percentage tends to be made up of minorites; 8% of those over 65 are black, but 24% of the elderly poor are. Right now in America, working for your entire life - up to 65 - at 45% of the average wage will still put you below the poverty line after you retire; this hardly seems fair, should the Government really not intervene?

    It works even better if you assume that privatisation is more efficient; this isn't true either. Take healthcare, for example; if private companies are "more efficient" than government schemes, why is it that the USA spends more on healthcare per capita than any other developed country (OECD, 1998) without, according to the NBER, an improvement in survival or recovery rates? Surely this is an indication that a centralised system of healthcare is less wasteful than one in which everyone pays for the cover they want - if they can afford it.

    I'm not saying that the govt. doesn't have its place. For common good...we do need it for defense, law enforcement, etc. But, shy of things that really cannot be best done by private citizens...I feel they need to let me keep most of the money I earn, and let ME decide my fate by allowing me to plan, and invest for the future.

    Why draw the line there? Surely if you could be allowed to choose the level of law enforcement you needed, and pay for it, you could do a better job than the Government? After all, the problems in this area are similiar to those in healthcare: those who need it most are often poor and those who need it often don't anticipate the need. And as America has shown us, a profit driven atmosphere will lead only to improvements in efficiency, not in sacrificing peoples needs for profit. I'm sure there's a justification for costs to go up by three times the increase in wages, while simultaneously hospitals across the country shrink the profit-haemorrhaging Emergency Department that doesn't involve the word "greed".

In seeking the unattainable, simplicity only gets in the way. -- Epigrams in Programming, ACM SIGPLAN Sept. 1982