Virtual Economies Attract Real-World Tax Attention

doug141 writes to point out a Reuters story on the attention tax authorities are beginning to focus on virtual economies. From the article: "Users of online worlds such as Second Life and World of Warcraft transact millions of dollars worth of virtual goods and services every day... People who cash out of virtual economies by converting their assets into real-world currencies are required to report their incomes to the U.S. Internal Revenue Service or the tax authority where they live in the real world... 'Right now we're at the preliminary stages of looking at the issue and what kind of public policy questions virtual economies raise — taxes, barter exchanges, property and wealth,' said Dan Miller, senior economist for the Joint Economic Committee of the U.S. Congress."

Ummm....

[porkThreeWays]

This may have been an issue at one time when I actually knew people making a living on EQ. However, I really doubt it's a huge deal today. Because of the international aspect of most of these games, lots of people with lots of time on their hands have time to make most items and currencies almost worthless in real money. I used to know 5 people who supported themselves on EQ transactions. Today, I don't know any who support themselves via mmorpg.

Um, Duh?

[Omega]

Almost any time money changes hands it is subject to taxation. I don't get why selling a "virtual" item shouldn't be subject to taxation as well? I mean, if I sell software online only -- that's virtual too, right? So doesn't sales (or at least income) tax apply?

The real question is, "Is selling virtual property" subject to capital gains taxes (like selling a second home or shares of stock)? There's an argument to be made there -- and I'd be curious to see what Congress says.

Re:Finally.

[SatanicPuppy]

What would the tax be, exactly? For the most part, most states don't require sales tax on internet purchases. And if you sell accounts for more than $400 bucks, then you should be reporting that income to the IRS anyway, same as with any other income.

I don't see any need for a special case. You make money off it, you're supposed to declare that money and pay taxes on it. Goes without saying that most people don't, but that's just an enforcement issue.

Yeah, but

[Lord Kano]

Is it considered earned income or a capital gain?

From a tax perspective, there's a huge difference.

LK

Ebay is the key

[ackthpt]

I'm surprised this wasn't done years ago when people were making real money off of Ultima Online and Asheron's Call. Good AC accounts, like Animal the first level 126 Battlemage which went for $5,000, were going for thousands during it's prime and even a year or two afterwards.

You, nor many others are really getting it. They're not going to tax your stuff in game, they're going to figure out how to shackle eBay with a scheme to report all your personal sales to the IRS, then tax you on them. Won't matter whether you're turning a profit or not, they'll want a cut of it.

Re:Finally.

[mysidia]

What would the tax be, exactly? For the most part, most states don't require sales tax on internet purchases. And if you sell accounts for more than $400 bucks, then you should be reporting that income to the IRS anyway, same as with any other income.

Income Tax. For US citizens, the government has a tax for your worldwide income.

I for one am concerned of the possibility they might deem your exploits in-game to be taxable income, payable in US dollars, for instance, the moment your character enters the game, slays a boar, and gets 200 gold pieces off the corpse, that generates an earned income taxable event, and possible self-employment tax liabilities.

The amount of income depends on the going rate of how much the asset a 'gold coin' sells for by other players who have been selling them.

Re:Well

[tubs]

There was a case of that in the UK, an architect was bribing officials - one of the reasons they managed to "get him" was that he recorded all his bribes and used them for tax deductions.

The Treasury said that yes, that is correct - bribes are tax deductable if they have the correct reciepts.

http://www.guardian.co.uk/comment/story/0,,393135, 00.html [guardian.co.uk] - Looks like even if a Tax officer finds the bribe, they are not allowed to inform the police.

Re:Finally.

[KDR_11k]

Problem: when you slay the boar and get the gold, it's not a matter of something increasing in value.. it's a matter of you working and earning, acquiring control over a new possession that already has a market value at the time you earned it, that's what might get taxed, as an ordinary income asset, instead of a gain from selling a capital asset.

Yes but all items remain property of the server operator so you're just renting that gold (and your entire character).