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Role Playing (Games) The Almighty Buck

When Tax Day Comes to Azeroth 141

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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When Tax Day Comes to Azeroth

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  • by wakingrufus ( 904726 ) on Wednesday April 18, 2007 @01:46PM (#18785175) Homepage
    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.
    • Re: (Score:2, Informative)

      by commisaro ( 1007549 )
      Hmm, yes... scamming the IRS... ALWAYS a good plan.
      • My point is more that there is absolutely no documentation to prove how much "money" I had or had not made. IRS doesn't know I have an account, and the game company doesn't know who I am. It is like me running down a random street and throwing a pack of collectors baseball cards at the first pedestrian I see, and then saying the government is going to tax that guy for that income.
        • by cortana ( 588495 )
          Hm. Wouldn't they only have to pay on the profit they made if/when they sold them?
          • If he sold them, it would be like selling your online stuff, which in my GP post I said i could see happening, however in TFA, they mention the possibility of taxing your online assets even if you don't sell them for RL money. In my analogy, this would mean he gets taxed just for having the cards, which is why I find the whole notion silly.
          • by ivan256 ( 17499 )
            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 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.
          • 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 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
        • 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 (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.
          • There already several "virtual worlds" that exist, and have existed for decades, that have not been taxed and will not be taxed in the future.

            Number One(and most obvious): The Game of Monopoly. It too has a purely virtual currency, people have made millions playing it, yet there is so far, and there will always be, ZERO taxation.

            Number Two: Any casino. You convert your money to chips, play with chips, make millions, lose millions, and don't generate a cent in tax liability until you convert back to "real" m
            • Your thinking about casinos is incorrect. If you were to go into a casino, play and win - you would definitely be subject to tax on your winnings, regardless of whether or not you converted your chips into cash. The chips are a cash equivalent, and are convertible to cash at a determinable rate. All the income tax laws require - if for you to receive something of value and for that value to be reasonably determinable. Think about your pay check. If your employer issues you checks, and you just never ge
            • The issue with Monopoly, is there is no secondary market for monopoly money - thus it's value is not reasonably determinable and so - no tax. If a secondary market were to develop for monopoly money, then it would, arguably, have a determinable value and as such, any that you earned would be potentially subject to tax. Of course, WOW gold and monopoly money differ in other important ways as well. Monopoly is a time limited game, and there is a fairly small, finite amount of money. Now - if the games ar
        • My point is more that there is absolutely no documentation to prove how much "money" I had or had not made. IRS doesn't know I have an account,

          All they have to do is ask SOE / Blizzard / Turbine / etc. to get a list of active accounts.

          and the game company doesn't know who I am.

          Sure they do. Even if you pay in game cards they still require personal information to set up the initial account (be it an email address or a physical address and phone number). Sure, you can put in misleading information just like
    • 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?
    • by zippthorne ( 748122 ) on Wednesday April 18, 2007 @03:02PM (#18786445) Journal
      If they tax it, you can claim the subscription fee as a business expense.
      • OMG I hadn't thought of that. Why stop at the subscription though? Write off your internet connection, electric bill, even rent since you have to have a place to "work". I'm sure there's a few more I'm overlooking but yea. Great idea. On second thought, yes, DO tax these things, my tax refund will be larger than ever, as since I don't make real money playing these games (not often anyway, occasionally a friend might slip me a $20 to go hunting with them), I'll always have a capital loss. That would make my
        • Re: (Score:3, Informative)

          by nickname225 ( 840560 )
          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 and any excess loss, cannot be carried forward. Sorry.
          • Re:Mod Parent UP!! (Score:5, Insightful)

            by RobinH ( 124750 ) on Wednesday April 18, 2007 @11:19PM (#18792807) Homepage
            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).
      • No you can't, no more than you can claim your bus fare to get to work as a business expense.
    • by Jaeph ( 710098 ) on Wednesday April 18, 2007 @05:05PM (#18788135)
      You are a fool. They will ask blizzard who you are.

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

  • by __aaclcg7560 ( 824291 ) on Wednesday April 18, 2007 @01:48PM (#18785199)
    With having tax collectors in the game that players can beat up and rob?
  • by simm1701 ( 835424 ) on Wednesday April 18, 2007 @01:52PM (#18785269)
    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!!
    • by ADRA ( 37398 )
      Agreed. The game crosses from entertainment to asset when you sell something for real money.
    • network connections

      Tiny nitpick about your otherwise astute observation, but I believe fees for Internet Access are not subject to sales tax in the U.S.
      • True, even in the UK the VAT would be claimed back, but those payments for the network will show up as income for the telecoms company - the telecoms company will then pay some of that out in tax (profit, staff wages and the tax on that, etc)

        Everything you pay out has a cut taken out of it for tax, usually every step of the way - there are plenty of essays around analysing just how much of your wages ends up going in tax - most vary in their results from 70% at face value to converging to 100% depending how
  • Cashing out (Score:5, Insightful)

    by Metaphorically ( 841874 ) * on Wednesday April 18, 2007 @01:54PM (#18785295) Homepage
    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.
    • by TBone ( 5692 )

      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 everyone wins!

      • by ivan256 ( 17499 )
        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 themselves minimum wage?
      • by Retric ( 704075 )
        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 your profit but you would need to pay payroll taxes on that.
  • by MeanderingMind ( 884641 ) on Wednesday April 18, 2007 @01:58PM (#18785379) Homepage Journal
    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!!!!!
    • by oneiros27 ( 46144 ) on Wednesday April 18, 2007 @02:23PM (#18785839) Homepage
      Many people forget this, but when WoW first came out, people were up in arms about their Terms of Service []. 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.

    • Speculation:
      3) Players would actively reject having to pay out for in Game transactions as no definitive model seems liable for the 'real market' value of in Game items and taxation thereof. The hassle will be too much for subscribers. Thus dropping subscription rates drastically and possibly crippling the industry. (which, with how things appear to be going in China's government, may seem like a good thing)

      5. Profit

    • Re: (Score:3, Interesting)

      by snowgirl ( 978879 )
      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, 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
    • by Amouth ( 879122 )
      if they start taxing in game items / moeny

      i will just make it a point to pay them with in game money - nothing like grinding away your dept to the irs
  • by EveryNickIsTaken ( 1054794 ) on Wednesday April 18, 2007 @01:59PM (#18785389)
    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.
    • The only time that a tax would be applicable would be if real-world money changes hands.

      That's how it should be (if they tax it at all, that is), but that's not necessarily how it could be, or will be.

      In RL, when you exercise incentive stock options, for example, you typically purchase stock worth X dollars for some amount less than X. In the US, due to the Alternative Minimum Tax (AMT) rules, you owe tax on the difference between what you paid and what it's worth at the time you bought them, even though yo

      • In the US, due to the Alternative Minimum Tax (AMT) rules, you owe tax on the difference between what you paid and what it's worth at the time you bought them, even though you haven't sold the stock yet.

        I read above some comments basically saying you're taxed on your profits i.e. the delta and I thought they were wrong - I remembered reading some story like yours before.

        So basically you got taxed on income you could have made, but in fact didn't? I'm not a great fan of stock options, but that's harsh.

        • So basically you got taxed on income you could have made, but in fact didn't?

          Yup, that's the gist of it. And, yeah, it's crazy (which is why I didn't believe it either until it happened to me).

          It's a little more complicated (of course). If you pay the AMT, you get to claim it as a credit against future returns (a little each year). So, in theory, you eventually get your money back. But, in my case, the tax I owed was so great that I had no way to pay it in time. In fact, the amount I could afford to pay eac

    • I agree with you in that is the only way that it could be justified, otherwise they just as well tax you for an on going game at Monopoly. These rumors have been flying around for years, and I see ***no*** plausible reasoning for it being legit. In a since, you/we already pay a monthly tax for the in game government - hence Blizzard them selves. The selling of characters and gold I believe has been out right banned by the said in game government - which would be the same thing as printing monopoly money and
  • Untapped Markets (Score:5, Interesting)

    by Clever7Devil ( 985356 ) on Wednesday April 18, 2007 @02:06PM (#18785511)
    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? (Score:4, Insightful)

    by Chris Burke ( 6130 ) on Wednesday April 18, 2007 @02:06PM (#18785521) Homepage
    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.
    • Well, the actual tangibles of a company (money in the bank, perhaps ownership of a building, sometimes an inventory, some office furniture) is usually a small part of the company's value. That value is in job contracts with employees, intellectual property, contracts with customers, expected future earnings, brand recognition, et cetera. All totally intangible.

      Of course you have a point, but if WoW stuff is tradeable for real cash on some more or less permanent market, then it has real value. Period.

    • Please! A share of stock is ownership of a piece of the company.

      Actually, it is still intangible that it is still bits on a server somewhere and it is worth as much as the market allows.

      In a sense if Blizzard erases your account or the company you purchased stock in goes belly up, then you are left exactly with the same exact thing... Nothing.

      Tangibles include real estate, precious metals, and various other real world items that remain the same in a physical sense regardless of how the market values them.

  • 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 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
    • > 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 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.

      • 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.

        If everything that is sold in that market is created and consumed in the market, then where is the problem? Or were you just picking a bad analogy so as to have a strawman to argue against?
        • I don't think I'm working with a straw man here. If you create a self-contained marketplace in the real world and people buy and consume objects within that market place then they can expect to be taxed.
          • I don't think I'm working with a straw man here. If you create a self-contained marketplace in the real world and people buy and consume objects within that market place then they can expect to be taxed.

            Assertation without explanation is meaningless - WHY should they expect to be taxed? What benefit do they receive in return for paying those taxes?
            • > Assertation without explanation is meaningless

              The word you want is 'assertion'.

              > WHY should they expect to be taxed? What benefit do they receive in return for paying those taxes?

              Why have you put these questions together? I don't see how they are related. As a result, I must be misunderstanding something you are saying. My expectation of whether or not I'm going to be taxed for something is completely independent of whether or not I get something in return for those taxes.

              By the way, if you

    • by dbIII ( 701233 )

      So, if all of the above is true, just why is it inevitable for "virtual worlds" to be taxed by real-world governments?

      Only becuase some mongrel tax official sees money that they cannot tax. From the terms of service Blizzard saw this and all the hassles of selling game items on ebay coming - how else can they fix it other than owning everything and just selling you time to play?.

      From the outside second life looks like badly thought out option because you can play with real money and have real scammers and

  • Enough? (Score:5, Funny)

    by djones101 ( 1021277 ) on Wednesday April 18, 2007 @02:11PM (#18785631)
    Haven't [] we [] discussed [] this [] enough []?
  • Oh you did read the EULA, right? Blizzard owns the characters, money, likenesses of items, etc etc. We'll never have to pay taxes on things we don't own. We pay sales tax for the game, and the time cards if you use them. If you make a living selling gold/characters on ebay, aside from being against the EULA, that's a different story. Do enough of them and you probably qualify for a business. In which case, your might list your WoW accounts as assets.

    Simply put, the average John Q Public WoW player ha

    • by SydShamino ( 547793 ) on Wednesday April 18, 2007 @03:40PM (#18786917)
      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" .
  • why was this worthy of being posted to /.? there's no way in hell we would ever be taxed for looting 50 silver off of a dead zombie or whatever...unless i can claim my characters as dependents i think people would give the gov't a big fat middle finger. hell i'd buy multiple accounts and fill the character slots just to get the deductions.
  • 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!
  • I skimmed throught the comments and saw a lot of "Blizzard owns the data not me" and "they can't trace my character to me" replies. I'm pretty sure that when this finally goes through the license agreements will be changed and accounts will be tracked differently to compensate for the new laws.

    I hope as much as the next gamer that something like this never goes through, but when I sit back and try to think realistically... it's really only a matter of time. Maybe enough money hasn't changed hands yet, or t

    • by dbIII ( 701233 )
      I don't think so. I think it is the best interest of all but opportunistic scammers to keep it that way and to ensure that things have zero transferable value in real currency. If more than just the time is sold it opens up large cross border legal hassles with tax departments looking for a convenient buck and a ready made election issue ("we need to tax them - they are foreigners fleecing the pocket money of children ... etc etc - insert other emotive election tangentially connected platform or three her
  • by Greyfox ( 87712 ) on Wednesday April 18, 2007 @02:57PM (#18786367) Homepage Journal
    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...

  • As i said in my earlier post to a similar story here [] there just aren't enough taxes. After all, I only pay taxes on normal stuff like things i buy, income, electricity, entertainment, food, water, shelter, work, gas, and even, as I realized, death. I mean that leaves things like sunshine, air, thoughts, fingernails, dead skin, and a plethora of other things that are not taxed. These are all just billions of dollars in potential income that no one is going after. Why, just imagine all the cool things we co
  • Stop already. The "scare the geek" thing with taxes is a horse that's been beaten long past hamburger.

    Yes, it's probable that eventually if you are earning a REAL-WORLD INCOME from selling things in a virtual game world, you'll be taxed on it, like you will eventually be taxed when selling crap on ebay.

    But of course the "teaser" text never says that, they make it sound like there's going to be a lvl 100 Elite Auditor in every game watching how many coppers you make selling rabbit corpses.
  • If the government were to consider my income generated by gaming as taxable income... then I must be allowed to consider the monthly fees as a business expense as it was an expense incurred in pursuit of that income.

    Of course, that would mean that I must start a business in order to game online... and of course my computer then becomes business equipment... oh and I'm a horrible gamer, so I'll never be profitable... so eventually my gaming business will file bankruptcy... they will take my old gaming rig in
  • by Programmer_In_Traini ( 566499 ) on Wednesday April 18, 2007 @03:19PM (#18786665)
    There are only two things in this world that you cannot escape: taxes and the wow graveyard
  • by Dausha ( 546002 ) on Wednesday April 18, 2007 @03:19PM (#18786669) Homepage
    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?
  • by sirwired ( 27582 ) on Wednesday April 18, 2007 @03:50PM (#18787049)
    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.

    • by Twylite ( 234238 )

      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.

      If your real-world tax system includes Value Added Tax (VAT), then this is definately a VAT transaction.

      Every mechanism to realise real value from virtual goods (characters, equipment, whatever) will constitute either Income, Value Add, or Capital Gains. Exchange of virtual goods for

  • nuke second life....get it fucking's nothing but a bane to our existence in every way. No one gives a fuck if some small group of people is trading gold for $$$ on WoW. The real problem is this stupid ass SecondLife thing that people pay INSANE amounts of money for completely virtual CRAP. WTF? Then all they really do is fuck around, socially redeeming value to SecondLife...its useless. Get rid of it before we get taxed because of it!
  • as a big loss?

    If not then this WILL KILL OFF WOW and other games like it as people will not want to pay taxes on stuff and they can't sell with out taking a risk of losing it all even if you are just sell what is needed to pay the tax bill.
  • I see 2 huge holes in this.

    First, in games like wow buying and selling gold/items/characters for real cash is against the policies of Blizzard. So technicaly it has no value to the consumer. Its all property of Blizzard.

    Second, if you are going to tax me on what I have earned in a virtual world, then you are going to give me tax credits for what I lost along the way. What if Im a bad player that plays alot, but at the end of the day have nothing to show for it? At the end of the year of fees, a person c
  • by jgoemat ( 565882 ) on Wednesday April 18, 2007 @05:01PM (#18788065)

    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...

  • by TomRC ( 231027 ) on Wednesday April 18, 2007 @06:47PM (#18789469)
    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.
  • by hurfy ( 735314 )
    I forgot to write off the 2 MMORPG accounts i closed last year :(

  • Suppose you use the tool (like in Second Life) to create an alife - an artificial lifeform with AI. Suppose the you-plus-computer-generated character can interact with other human players.
    Suppose it makes money for its own use.
    Suppose it has kids, and they make money.
    Who pays the taxes?
    If the alife does, how you gonna arrest tax cheats? De-res them ala Tron? That won't work so long as there's backups.
    Once alifes begin their own game-based economy, and start trading with humans, might humans start getting
  • Any money paid to the company hosting the game is entertainment dollars spent, no matter what service or product it buys. If you spend $1000 US for $10 million Linden or 10 million acres of virtual real estate, in the US gov't eyes you're buying software or a software service. That's all. Linden dollars, virtual land, soooper weapons and hot elvish sexbots - why would the gov't even care what the software 'service' is in your imagination?
    Eventually, it'll get to where it's as complex and may be considere
  • Stock is completely tangible as it legally IS a portion of the real assets of a company. The stock in your posession is just a technical way of labeling your ownership of those real assets. Kind of like a DEED.
  • How long before states want sales tax? Perhaps because they realize it is impossible to implement, our state demands self-disclosure of internet purchases and payment of sales tax annually on the tax return.

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