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Taxing Virtual Gaming Assets
Posted by
Hemos
on Mon Dec 04, 2006 09:45 AM
from the someday-the-ride-will-be-over dept.
from the someday-the-ride-will-be-over dept.
rijit writes "It appears very likely that taxation of online games assets is inevitable. Quote: 'That's because game publishers may well in the not too distant future have to send the forms — which individuals receive when earning nonemployee income from companies or institutions — to virtual world players engaging in transactions for valuable items like Ultima Online castles, EverQuest weapons or Second Life currency, even when those players don't convert the assets into cash.' "
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Games: eBay Delisting All Auctions for Virtual Property 324 comments
The growing popularity of Massively Multiplayer games has brought the issue of ownership rights in virtual worlds, and the appropriateness of what is called 'real money transfer' (RMT) into an increasingly public light. The success of the company IGE, as well as the launch of Sony Online Entertainment's 'Station Exchange' service would seem to indicate that RMT is now an acceptable part of Massive gaming. The well-known auction site eBay has recently made a policy decision that may throw these assumptions into a different light. Following up on a rumour that's been going around I spoke today with a media representative for the company, who confirmed that eBay is now delisting all auctions for 'virtual artifacts' from the site. This includes currency, items, and accounts/characters; not even the 'neopoints' used in the popular Neopets service is exempt from this decision. Read on below for the company's rationale for this decision, and a few words on the impact this could have on future RMT sales.
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Politics: Congress to Revisit Virtual Goods Taxation 205 comments
News.com has the word that congress is set to re-visit taxing virtual goods, a concept they shelved a while back in order to consider the matter more fully. That's given the Congress' Joint Economic Committee time to come to a decision about what exactly the value of virtual goods means for players and game-makers. An economist with the group told CNet to expect their report sometime next month. "What that report will say is unknown, as the committee has kept entirely quiet about its thoughts. However, it's clear that something will happen. 'Given growth rates of 10 to 15 percent a month, the question is when, not if, Congress and IRS start paying attention to these issues,' [senior economist Dan] Miller, who is a fan of virtual worlds and economies, told CNET News.com in December. 'So it is incumbent on us to set the terms and the debate so we have a shaped tax policy toward virtual worlds and virtual economies in a favorable way.'"
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Oh, I know. (Score:5, Funny)
If we don't pay (Score:4, Funny)
Will they put our characters in a virtual debtor's prison?
Re:If we don't pay (Score:5, Funny)
That's ok (Score:5, Funny)
The conjugal visit expansion would confuse most online gamers anyways.
Re:That's ok (Score:4, Funny)
Nah, they'll just complain that the expansion 'ruined' the original game by forcing people grind even more than they where doing before without adding any real content. They'll also say it's unbalanced as not everyone will be able to experience the new content unless your hardcore!
Re:If we don't pay (Score:4, Funny)
But I already have an Everquest subscription!
Re:Oh, I know. (Score:5, Funny)
To: Seren
From: IRS dude
Subject: $$$ GOLD NOW!!!
Go to www.irs.gov/warcraft for the LOWEST WARCRAFT PRICES GOLD PRICES EVER! Rates as low as $9.47 for 100 gold! Amazing!
Re:Oh, I know. (Score:5, Insightful)
Re:Oh, I know. (Score:5, Interesting)
Heck, if so, anyone with a fat pile of capital gains may start looking into sponsored events in MMOs. Sure, pay a couple of college kids $5/hr to play a game they enjoy and to turn over any high value items. Donate the high value items for tax write offs and blammo! For a couple grand in labor you have a huge tax incentive!
-Rick
Re:Oh, I know. (Score:4, Insightful)
Re:Be careful if you live in FL (Score:5, Insightful)
If you buy 1,000 shares of stock for one penny each, and those 1,000 shares zip up to 5,000 dollars a piece, you don't owe a dime of tax (unless you receive dividends). If they drop back down to 1 cent each, and you sell, you owe tax based on the amount of money you made when converting the shares back to cash, which, in this case, would be 10.00.
You do NOT owe money based on how much that stock was worth at it's peak, because you didn't sell it at that value, and it would be grossly unfair to tax you based on the 5,000 dollar a share value, when you sold at 1 penny a share...That'd be on the order of a million dollars tax owed on a ten dollar sale.
Since WoW gold, etc, is valued at different values on different servers, and since that value fluxuates on a daily basis, it would seem to be impossible for the IRS to tax "gains" of WoW gold/items that have not been converted to actual currency...At what value would they fix those assets? It's be like taxing your penny stock at the 5,000 dollar mark...You don't have that money, and there is no guarantee that you'll ever have that money, so how can they tax it?
Now, if you sold gold/items/characters, that would be completely taxable, but I wouldn't think it would even fall under capital gains, but rather unreported non-work income, just like any other money gained from where people don't do your tax witholding for you.
Just stupid.
From the FL dept of revenue (Score:4, Interesting)
What is Intangible Personal Property Tax?
Florida's intangible personal property tax is an annual tax based on the current market value, as of January 1, of intangible personal property owned, managed, or controlled by Florida residents or persons doing business in Florida. (empahsis mine)
Now, currently, intangible property is limited to stocks, bonds, etc., but there's no reason that the state couldn't extend that to property in a game (though it's unlikely). Remember, too, that businesses are often taxed on business property, which is valued every year at current market value or at depreciated value, depending on the type.
There are lots of pitfalls in the way things are taxed - mostly to get around people who try and get around the system, or to extract revenue from other/new sources (FL has lots of retirees, retirees have low incomes but high net worths - intangibles is a way to get at that money).
Re:Be careful if you live in FL (Score:4, Informative)
Re:Be careful if you live in FL (Score:5, Insightful)
For any kind of real economic recognition, unless the IRS and the state department feels it's a good idea to essentially hand a money printing permit to the MMORPG companies, with the associated real-world currency inflation, the virtual worlds economy engines would need to be under SEC and/or central bank control.
How many dupe bugs, run-amok sysadmins, random item rarity changes, and outright company _sales_ of the virtual items would it take before we'd get Sarbanes-Oxley for MMORPG's? New profession coming in the new expansion; Accountant. No players may loot items without an Accountant in the group...
"it's not as though dollars actually represent any stable tangible assets anymore."
A particular dollar in your bank account does, however, represent a physical dollar payable to you. If the bank allowed a teller to multiply your account balance with a billion, that bank would have a problem, as they themselves, unlike the MMORPG vendor, cannot simply print more to give you.
Re:Be careful if you live in FL (Score:4, Insightful)
A physical greenback hardly qualifies as a "stable tangible asset." How many Euros will a USD net me tomorrow? How about the day after? In July it was 0.8 USD, but right now it's closer to 0.75. A dollar merely represents a particular value, but as with many other things fiscal, that value is quite fluid.
Re:Be careful if you live in FL (Score:5, Insightful)
I think what you would ultimately see is a drop in the number of casual MMO players like myself, and the constant complaining from the hard core MMO crowd.
Monopoly Rent IS Next? (Score:5, Insightful)
Taxes suck, but why not? (Score:4, Interesting)
I personally don't see how this is any different than, say, taxing sales of Beenie Babies, whose value (like so many things) is also largely virtual.
As a registered Libertarian, I can't say I'm too happy with trends towards new taxation (internet sales tax, etc), but this type of thing may be inevitable as more and more people make significant portions of their income in online environments. Maybe this should be targetted only at assets that can be legally converted to cash?
Re:Taxes suck, but why not? (Score:5, Insightful)
The same reason a dogs licks their balls. Because they can.
As to your comment about the guns, taxes usually increase in a fairly consistent matter through a nation's history up until enough people with guns have had enough.
Re:Taxes suck, but why not? (Score:5, Informative)
How can we be taxed on something we don't own? (Score:5, Interesting)
Re:Taxes suck, but why not? (Score:4, Informative)
Re:Taxes suck, but why not? (Score:5, Informative)
The alternative to income taxes would be federal sales tax, which is generally considered to put an undue tax burden on people who don't make a lot of money...eg, the rich man and the poor man buy a loaf of bread, and the 30 cents tax on the bread that goes to the Fed means nothing to the rich man, but means a lot to the poor man.
I suppose that you could add heavy taxes on luxury goods to "even out" the tax burden, but that's not exactly fair to the middle class (my new flat screen is gonna cost WHAT?!), and it puts luxury goods completely out of reach for poorer families.
Taxes are there to provide services for the whole of the population, whether it's paying for the military to protect our borders, and the police to protect our homes, or paying to clean up toxic waste spills, or paying for the interstate system, etc. People who demand "a la carte" government services always annoy the crap out of me, because they're always the people who refuse to see the point in anything that doesn't benefit them in a big tangible sort of way.
Re:Taxes suck, but why not? (Score:4, Interesting)
Regardless of the validity of your claims, you have lost all credibility because you have proven that you don't have a sense of perspective.
And since this is an article about (primarily) mmos...
GG L2Argue Nub. Pwnt!
virtual money (Score:5, Interesting)
Also, do players actually own the virtual assets? Because aas far as I can tell it's the game operator that actually owns them since they can always take those assets away from the player (for example by cancelling their account).
Re:virtual money (Score:5, Insightful)
Re: (Score:3)
Re:virtual money (Score:4, Insightful)
Gamers can't have it both ways, try to monetize their virtual assets, and then say it's not really worth anything. We know very well than many people make lots of money on this useless crap, so obviously, it's worth something. One way or the other, people. Taxes are a bitch, but they too exist.
Re:virtual money (Score:5, Insightful)
If you find a handkercheif on the ground that you're going to claim was used by William Shatner should you be taxed for the supposed real world value? No, but if you sell said item on ebay, suddenly it has value, value that you should be taxed on if you're honest when filling out your forms.
Finding the phatest l00t ever in WoW isn't worth anything, the items not really yours, the character who found it isn't really yours, the server it exists upon definitely isn't yours. The second you sell it for real world money though, that is income and it should be taxed.
Most people are not asking to have it both ways, a line should be drawn. Virtual assets are virtual assets, real money is real money, you can tax the real money that someone gets for selling access to virtual items, you can't tax virtual items which in an of themselves have no real value.
Re:virtual money (Score:5, Informative)
The IRS openly indicates in publication 525 that, "If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year you return it to its rightful owner." The same applies to accepting bribes. You can read it here [irs.gov]. Basically, it doesn't usually matter how you receive income, it's taxed.
Bullshit (Score:3, Insightful)
taxes on virtual goods? (Score:5, Insightful)
Paying taxes on virtual goods where you don't exchange for real money is stupid.
What, are they going to start looking through my character's inventory, evaluating how much my +10 Sword of Uberness is worth?
Re:taxes on virtual goods? (Score:4, Insightful)
How is it any different than having to pay capital gains tax on the part of your nominal gains counteracted by inflation? You haven't gained anything! Take the extreme example -- You have certificates of deposit for gold (the metal), and you have to pay capital gains tax when the dollar loses value, even though the gold's purchasing power is virtually guaranteed to be constant in the long run!
I'm not entirely sure that logical ratiocination and taxation have ever been formally introduced. If they were, they probably decided pretty quickly that they didn't belong in the same room together.
Sign Up (Score:3, Funny)
Yes! Sim CPA (Score:4, Funny)
Hmm (Score:5, Insightful)
Game-changer for Grey/Black RMT Markets? (Score:3, Interesting)
No Taxation without Representation! (Score:5, Funny)
Re: (Score:3, Insightful)
That ideal is already so far gone it is not funny. Think of all the taxes now that people who can't vote have to pay.
all the best,
drew
How can Game Currency be taxable? (Score:5, Insightful)
If I understand the article correctly, assets gained in a game would be taxable, even if they are never converted into "real" money. If I had a Second Life business that made 1 million Linden Dollars in a year, then I would be taxed at whatever the U.S. Dollar to Linden Dollar rate is, even if I never take the "money" out of Second Life. To me this is ridiculous -- that would be like me being required to pay taxes on properties won in a Monopoly Game. I may own the whole board, but that does not translate to any wealth in real life.
A better example might be the stock market. Stock in XYZ company that I bought for $10,000 may be worth $100,000 today, but I am only taxed on those "gains" if I sell the stock. After all, who is to say that the stock won't be worth $5,000, or even nothing if the company goes belly up. I think the same should apply with game worlds -- as long as the "money" stays in the game world it should not be taxable, but once the "money" is converted to real money or "real" goods and services, then tax is due. After all, if I have a million Linden dollars in Second Life and the Linden would go out of business (not saying that this is likely, but just as an example), then my million Linden dollars would be a valuable as Enron stock.
I can understand taxing businesses in these worlds that make "real" money, but I think it is a real slippery slope taxing "game" money made in an online world unless the profits are taken outside of the game world.
Real taxes for online gaming... (Score:4, Funny)
We knew it was coming (Score:4, Insightful)
There's no such things as free money.
Let me get this straight (Score:4, Interesting)
Last I remember, most MMO's it's against the ToS to trade for real money, so doesn't this law go against the ToS?
Fine tax me, and watch the mmo market burn. I ain't payin tax on stuff I don't own.
Let them sell then (Score:4, Funny)
The article is a Troll (Score:5, Insightful)
This Miller guy is nothing but a troll
Death of Taxes (Score:3, Insightful)
So taxes on virtual goods are a way for the government to fund its operations that enable real players to spend time inline. While in the virtual world it might seem like we're not consuming the real world services, but of course we are, though we don't notice. Those have to be paid for.
Though taxing income is a terrible way to pay, compared to others. I prefer a sales tax on all sales transaction. Somewhat lower rates for wholesale (goods resold), to keep transaction costs low and the economy less frictiony. Total exemption for some subsidized goods to protect the poor (and ensure people aren't penalized for not being poor). Like no taxes on raw food, raw cloth, the lowest percentile expenses on public transportation, primary shelter and energy consumed there, and essential healthcare including nutrition and prevention. And a very low rate on pure minority equity transfers, like 1 or 0.01% the full rate on stock trades, unless transferring control of the corporation. That would encourage people to save rather than consume unnecessarily. Which offers more money for investment, by them or by their banks. And actually correlates taxation amounts to the amount of benefit people derive from the country, beyond the crudest basic protections that everyone should have. While making the tax collectable from a much smaller population of vendors, who already keep transaction records without increasing the costs of reporting, and who are much more controllable with the threat of interfering with their business than are the hundreds of millions of humans, many of whom cheat on income taxes. And without invading the privacy of every American, collecting from the aggregate without tying transactions to identites without a court order.
I'd say that since our $12T GDP currently spends about $4T annually on Federal, state and various local scopes of taxation, we could collect about 33% total tax, probably 25% Federal and 8% state/local. States/localities could of course change their own rates. The increased efficiency of the system, including shrinking the leviathan IRS while collecting more of what's due (on a monthly/quarterly basis, rather than annually), would probably afford lowered rates, maybe down to 15-20% Federal. Which extra money would be available for investment. While welfare and other social subsidy expenses could be shrunk, at least the administration which currently processes their income tax as a noncollectable exception, rather than just not bothering with them at all. And those rates balance the budget, without debt, while paying off the huge outstanding debt we've created the past 230 years. Though the vast majority of that debt has been spent the past 6 years, while (not ironically) cutting taxes on those most able to pay them, who benefit the most from our country's expenses.
Note that I'm talking about ripping out the income tax by its roots, and totally replacing it with a simple sales tax.
In virtual worlds, the taxes would be collected only on real money taken in exchange for services. The arbitrary (and impossibly complicated) basis for taxation today, "pay what we say approximates what we spend, or go to jail and/or surrender your property", cannot deal with anything like our modern economy. After military spending, we spend more on debt service than on any other government service, clear demonstration that our revenue system is totally disconnected from our economy and government, while remaining its most essential core.
The US economy has now changed to one unrecognizable to the economists who institued the income tax less than a century a
How about a fucktard tax? (Score:4, Funny)
BIG money laundering issue here. (Score:4, Informative)
When money changes hands, banks and other institutions must report on both sides of the transaction. In game, at present, that doesn't happen. In could transfer in-game assets to someone as payment. In simplistic sense, I could hand "dirty" cash to someone and they could pay me in "game" assets. When I sell those assets, I now have "clean" money. The the cash could then be paid in small quantities to individuals to transfer smaller sets of funds back to the main player as in-game assets.
You could complicate that and hide it behind a few more cutouts, but that's the essential way to do money laundering like this. Of course, it could also be done as a massive number of people getting cash (say, $200 each) to buy in game assets then each transfer those assets to a counterpart in a similar pool of people at the far end, who sell the assets and now have the cash. They in turn buy other assets and repeat the transaction in reverse to a different member of the original pool and you close the circle. The more 'steps' it takes in the process, the harder to track.
You can (and people do) do the same thing in real life but the assets themselves either don't exist (which can be ultimately caught) or else are expensive and cumbersome enough to make the friction expensive. In virtual worlds it can be scripted and kept purposely obscured by a random seeming level of interaction among a large volume of players.
If these economies are going to be getting "real" then the controls on them will have to as well.
Re:Unemployment and Social Security Benefits? (Score:4, Funny)
Yes, but be careful not to hire too many. If you hire more than 14, you will have to provide them with virtual health insurance. And the rates on virtual disability insurance are just crazy. All that hacking and slashing...
Sigh... this is a mis-understanding of tax law... (Score:4, Informative)
Basically, the term "Direct" tax does not mean what you think it means. A "direct" tax is a tax on property, an "indirect" tax is a tax on commerce, consumption or trade. This is backed up by the full text of several Supreme court decisions and The Federalist papers, which may be relied upon to help understand the frame of mind, and/or terminology of, the authors of the constitution. (Some district courts didn't understand this in the text of their decisions, but the Supreme Court decisions override those in any case.)
"Direct" does not refer to how the tax is collected. (From a taxpayer directly vs. paid for by somebody else.) That would be stupid to even mention in the constitution, as the collection method of a tax is rather irrelevant when it comes to whether or not it is legal.
As far as the "The 16th amendment created no new power to tax."... Using this as a reason to say that income taxes are unconsitutional is silly in the extreme. The 16th amendment clearly states that income, from whatever source derived" is taxable. If the 16th amendment created "no new power to tax", and it plainly states that income is taxable, it would imply that the income tax was constitutional before, and after, the 16th amdendment was ratified.
Google for "Tax Protestor FAQ" for full details.
SirWired