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Lawmakers Trying to Head Off Massive Taxation 108

An anonymous reader writes to mention a Reuters article about a lawmaker's attempt to stop the Government's interest in taxing Massively Multiplayer Game content. R-New Jersey Jim Saxton is cautioning against exploring the taxable status of in-game items. From the article: "'The goal of the forthcoming Joint Economic Committee study is to help lawmakers understand the issues involved and head off any premature attempt to impose a tax on virtual economies,' he said. Under current law, Saxton said if a transaction takes place solely within a virtual world there is no 'taxable event.' Dan Miller, chief economist for the Joint Economic Committee, said earlier this week that the committee's study would start with a blank slate and be completed by the end of the year."
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Lawmakers Trying to Head Off Massive Taxation

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  • So long as you only look at those MMOs that the IG currency has an out of game (offical) value (IE 2nd life, Project Entropia), then you do have an actual sale going on....

    I know NOTHING about taxlaws and strange things that have to do with interstate/country taxes, however If I were to look at this on the most basic level:

    You have 2 people that live in the same state, and use a program like PE or 2nd live, that is based in said state. If there is a sale between these 2 people, shouldn't that be covered by
    • Most game ELUA's say you can't sell stuff for real money so either that will have to go away or there will a lot of messy court battles over ELUA's.
      If you get fined by the IRS for selling something in game even if is not for real money then we may people sueing the game makers for the fees that the IRS is trying to make you pay.
    • Re: (Score:3, Funny)

      by Volante3192 ( 953645 )
      I don't play, so I could be way off on this analogy. I'd like to think of it like savings bonds. They accrue interest, but you only get taxed when you cash out. You can inherit them, pass them around, give them away, whatever, they're only worth is paper until you cash them. Thus, people trading in game things should only get taxed if they cash out.

      What I'd be concerned about is if they start letting the IRS audit our virtual characters, where does it end? Can we declare bankruptcy if a character gets
      • by Thansal ( 999464 )
        well, the specifics was that I am only talking about games where the game currency (LDollars for 2nd life and PEDollars for Project Entropia).

        Treating them like bonds does not really work as you can't give some one part of a bond (can you?). It is also technicaly possible to straight up make cash in the games with out putting anything into it (atleast it was in PE, very very difficult and a waste of time, but possible).

        It is much more like simply dealing in another currency, and as far as I know, currency
        • Currency transactions can easily be taxable, there are many people who trade currencies like other might trade stocks and bonds. When I was stationed in germany, the rise and fall of the Mark compared to the Dollar was generally predictable, German companies would bid up the Dollars so they'd have them for foriegn trade, and the Dollar would fall as they sold of their holdings to pay their taxes in Marks, If you had the capital it was easy to make money simpley by buying and sell in counter-cycle.
      • by davidwr ( 791652 )
        Suppose I'm in the business of making MMRPG items and selling them in the real world. I'm a very small business netting $5,000/month for the past year and a half after taxes.

        I decide to expand. I could expand slowly, hiring one talented game-player then, when the business grew enough, another.

        Or, I could go to a bank or to investors with a business plan to grow the business at the rate of 2 new player every month until I reach 20 players, then re-assess the situation.

        Any lender or investor will want to kn
    • I think they are more than welcome to tax my virtual money. Of course, they aren't the government in that virtual world and that would be considered an invasion. So the virtual people could join sides and start a war. That might be a fun expansion for WoW! It'll be like the Yuuzhan Vong invasion in Star Wars. We all thought the Burning Legion were the real baddies, but little did we know these other creatures from an entirely different galaxy were waiting for the stability of the world to get rocked an
      • Taking it to the next level, wouldn't that mean your in-game characters get to vote for representatives? That could get interesting. Also, will the government be making infrastructure investments in the virtual world, such as streets and sewers? I would think the citizens would expect something in return for their tax money. I'm sure politicians haven't thought this far ahead, as their only concern is getting their greedy paws on yet another pile of money.
        • wouldn't that mean your in-game characters get to vote for representatives?

          Depends on the outcome of the invasion/revolution. If the IRS comes in with a bunch of level 15 accountants, I am sure the WoW player base can successfully repel that invasion. But once they start dropping down their level 60 auditors things could get messy, especially if they're riding their FBI mounts.

          Perhaps we would be able to settle the whole affair non-violently and set up a republic where we would be able to vote, but
        • by symbolic ( 11752 )
          I would think the citizens would expect something in return for their tax money. I'm sure politicians haven't thought this far ahead, as their only concern is getting their greedy paws on yet another pile of money.

          A slight clarification: ... as their only concern is getting their greedy paws on yet another pile of our money. That money has a source, you know.
    • Two people making a sale in a game taxed? What are you kidding? It is a game.

      Could you imgaine having to pay sales tax on Baldic Ave or income tax on park place everytime you play monopoly? Does it make a difference if it is a computer version? How about income tax on all the free food from MCdonalds monopoly games?

      Taxing online econemies is just stupid. Unless those items are being sold in real life like on ebay for real money. Then it is a different story. Your average level invisibility cloak and morph "
      • by Thansal ( 999464 )

        PEDs and LDs have a specific real world value and can be freely traded between the 2.

        This type of "game" is the only one being discussed by me.

        WoW/EQ/CoH/Etc are not being talked about by me as most people agree that taxing those would be silly.
        • I don't see the difference.

          The winning card for a mcdonalds monopoly game that only gives a free bigmac or supersizes any value meal free is worth the price of a big mac value meal upgrade. Does it then count as income because someoen gave you the equivilent of $2.00 or whatever a bigmac costs? And should this be counted at retail price of the bigmac or mcdonalds price?

          Now i'm sure someone is thinking that you don't have to count winnings less then a certain amount. It is possible that a person eating ever
          • by KDR_11k ( 778916 )
            Gold farming isn't selling gold because the gold is worth something in real life. You cannot buy anything with it (try paying your car loan with PEDs). Even if it is PEds or LDs. It is a trade for the time needed to collect the gold and therefore a service offered by the goldfarmer.

            No. The difference here is that the company running the game allows you to trade these virtual currencies back and forth into real money. They are like chips in a casino. There are no gold farmers getting these through game mecha
          • by Thansal ( 999464 )
            Project Entropia has a Debit Card.

            It automaticly subtracts and converts PEDs into cash.

            so yes, I can pay my car loan in PEDs.
    • Re: (Score:2, Insightful)

      If they tax virtual currencies then we should be able to deduct all of our expenditures on video games, computers, game consols, Internet connections, TV, Stereo, game controller, and any other equipment/services that we use to play the games. After all, we are using them in our own personal businesses in order to generate virtual money.
  • by B5_geek ( 638928 ) on Thursday October 19, 2006 @12:46PM (#16504349)
    Not that I want this to happen, but...

    If the government can't get it's collective head out of it's ass to setup/allow for inter-state/inter-country taxation of goods & services; how do they EVER expect to tax imaginary items!

  • by the_skywise ( 189793 ) on Thursday October 19, 2006 @12:48PM (#16504395)
    That if I get a monopoly in Monopoly(r) that my future games have to be government regulated?

    That I have to declare income taxes on all cash received while playing PayDay(r)

    That I have to declare my tax status to the IRS when I finish the game of Life(r) and retire?
    • That if I get a monopoly in Monopoly(r) that my future games have to be government regulated?

      If you sold one of your monopolies (or any other asset) in game to another player for game money, the IRS couldn't care in the least. If you were to accept real money for that transaction, then the IRS would like to know.

      This is the way that the law works right now. FTA: Under current law, Saxton said if a transaction takes place solely within a virtual world there is no "taxable event."

      With the changes t

  • with lots of special armor - and I sell it to other players for real-world cash - I would HOPE that the IRS would come after me.

    Let's get real.
    • Re: (Score:2, Insightful)

      by Anonymous Coward
      They already do.

      If you (in the process of violating the terms of service) sell virtual items on eBay, it's income, and you're obligated by law to report it on your filings at the end of the year.

      This is hoopla about taxing in-game currency. Basically, every now and then some yahoo with an economics degree dips too deep into the bubbly, starts yammering about make-believe tax implications in gaming, and then everyone loses their head and screams "omgwtfbbq! they're gonna tax mah golds!" when, in reality, nob
      • What some of the economics yahoos and politicians always overlook is that these online worlds tend to be very transitory. 3 years ago, Everquest was a big deal. Now, whatever you had in Everquest is pretty much worthless. So if you did start taxing all this virtual economy, there would have to be depreciation schedules, loss reporting, etc. In the end, it's pretty much a zero sum game.

        We have to remember that it's a game. Taxing WoW transactions would be comparable to taxing a football team everytim
    • Re: (Score:3, Insightful)

      by Boogaroo ( 604901 )
      Yes, but then it's real cash and a real transaction. Without a real-life transaction, it's worth nothing. You turn off your account and it disappears. Your house doesn't disappear when you move out, someone else gets it. It's real.
      • I remember when I was playing Diablo II (way better than WoW) and some guy in Hong Kong came on and started popping up giving away all his stuff. He said he decided he needed to focus more on studying, and felt the best way was to kill off his characters and give away all their possessions. Got some cool things then.

        Now that I would describe as charity, which is normally not a taxable event, but a transaction did occur, in that various characters got greater value.

        And I got some eight-socketed shields and
      • by ivan256 ( 17499 )
        I could build a 3500 sq/ft house with 4 bedrooms and 4 bathrooms out of $85,000 worth of materials, live in it for 10 years, and disassemble it into its requisite components which are now worthless and shipped to the landfill... The government would still tax me on the value of that building to the tune of $10k per year or so while I owned it even though no transaction occured at all. How is taxing a virtual item that you could sell for real cash, even if you never intend to, any different?
        • That is a different type of tax, property tax. I think they are looking at this as a capital gains tax.
          • by ivan256 ( 17499 )
            You're right. I was just playing devil's advocate...

            They do tax stock options as a capital gain though, even though no hard currency or goods have changed hands.
            • Stock options have a value that is readily available in the market place or through options pricing models. Granting a stock option is the same as granting a stock (although the value isn't the same) in the eyes of the IRS. If you let the option expire the loss can count as an offset to a capital gain (carry back/carry forward rules apply).
              • by ivan256 ( 17499 )
                Stock options have a value that is readily available in the market place or through options pricing models.

                You imply that virtual goods do not. If they don't, obviously they can't be taxed, but the implication is that you can easily determine these items market value.
    • Let's pay attention to what we're actually talking about.

      It's not a question of selling virtual goods for real-world currency. Of course that income is taxable. The concern is that this sale is itself a breach of contract.

      I'm not a lawyer yet, but I'll argue like one anyway (by analogy). The IRS taxes income from theft, even though that income is illegitimate (just like income earned from selling virtual goods in breach of contract). However, it doesn't tax you for possessions that others acquire, which you
      • So, basically, you're saying that no harm occurred to Eric Cartman then? I mean, even though a WoW player kept killing him and all the other players over and over and over, it's all good with you?

        How can you live with yourself? Tell you what, you go on WoW with your best character and all your stuff and go to a nice dark forest and tell me exactly when you'll be there. Then you drop all your armor and stuff and turn around and I'll whack you upside the head and jack your stuff.

        Still convinced I "gained n
        • You gained nothing of monetary value, just like if you steal all my monopoly money.
          • Re: (Score:3, Insightful)

            I think the Chinese Gold Farmers would disagree with you there. They make a lot from the equivalent of doing that.

            That you choose not to do it for profit doesn't mean it can't be profitable.
            • Those gold farmers are breaching the agreement they made with Blizzard; their profit comes entirely from ill-gotten gains. As I said before, [b]until I cash out by breaching my agreement[/b], it makes as much sense as taxing me for things that my neighbors acquire, on the grounds that I might steal them and thus be enriched.
              • So, in that case, if you "give" me your car, your dining room table and chairs, your TVs, your computers, and your wife's pearl necklace - then no transaction has happened?

                Cool. I'll be over at 4.
                • The taxable event happens when the goods have monetary value for you. When I buy my car, dining room table and chairs, TVs, computers, and pearl necklace, you haven't gained anything of monetary value. However, if you break the law and steal those goods, now they have monetary value for you and they can be taxed. Similarly, if I consent to giving you those goods, they now have monetary value for you, so you get taxed for them.

                  Similarly, when you "acquire" virtual goods or currency, they do not have monetary
      • by peret ( 724035 )
        The IRS taxes income from theft, even though that income is illegitimate

        Has this actually been tested in court? I know they try, but it's a principle of common law that you can't transfer a better title than you have yourself, and you have no title to something you stole.

        • A quote, apparently from IRS publication 525:
          "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"

          Pulled from http://www.legalaffairs.org/issues/January-Februar y-2006/feature_dibbell_janfeb06.msp [legalaffairs.org]
          • This is how a number of criminals are caught, they cheat on their taxes. While in my undergraduate program the IRS came to recruit people, they wern't looking for accountants to work in an office, they were looking for agents to infiltrate crime and use the tax code to prosecute them. I don't believe the IRS will go after a thief if they pay their taxes, they probably won't even turn you over to the FBI or a local authority as long as you pay them.
  • by way2trivial ( 601132 ) on Thursday October 19, 2006 @12:54PM (#16504481) Homepage Journal
    -my internet connection, my computer purchases, software purchases, etc???
    • IANAL and IANA Accountant, but I believe if you "make money" off of a hobby, you 1) have to declare the income and 2) can deduct the actual expenses.

      Making money by monetizing game assets is no different than making a profit by buying and reselling items on EBay. You generally get to deduct costs that are 100% related to your hobby/business such as subscription fees, and make partial deductions for costs that are partially used for your enterprise, such as your computer, subject to limits set by Congress.

    • by EMeta ( 860558 )
      Yes, yes it would. If you did have to report computer-made virtual income to the irs, everything you purchased to allow you to get said income should be deducted from how much you made. I'm not sure how people who work from an office in their home are taxed, but I suspect that you could get some discount for paying the rent or morgage on that room as well.

      And as opposed to some others in this discussion, I do think that an income tax on virtual transactions does make sense. As in many cases in tax la

  • The only things certian in Life are Death, Taxes, and Server Crashes. Second Life, that is.
  • The government has a hard enough time tracking down money laundering in the real world, if they made a tax on virtual items it would simply put a few more hoops in the way of people who want to get real money out of it. IE They would launder it. The people getting money would still wind up with less, but unscrupulous people could make a buck off of it instead of the government. Meh.
    • by KDR_11k ( 778916 )
      Yes but money laundering is a crime, tax evasion another and all in all you could jail them for quite some time if they did that.
  • Who do I vote out of office? Give me a f-ing ballot. Who do I vote out of office? Gimme a name. Gimme a name! >:(
    • Who do I vote out of office? Give me a f-ing ballot. Who do I vote out of office? Gimme a name. Gimme a name!
      I know this is off topic, but I think the voting system should be changed so that you can cast negative votes. Basically, you don't care who gets elected as long as it's not X, so you cast your negative vote for X.
  • Taxes should apply as normal to real money paid for access to objects in environments.

    You already do this when you purchase Microsoft Products. You don't buy anything but rights to access the code under specific conditions.

    The only thing needed to track is real world cash.

    Stupid Examples:

    1) I take my cable connection and count all the bits I dump to /dev/null and claim losses on all the data I failed to analyze. After all there are many companies monitoring traffic and providing reports.

    2) Tracking virtual
  • Ridiculous (Score:4, Interesting)

    by festers ( 106163 ) on Thursday October 19, 2006 @01:40PM (#16505383) Journal
    According to Blizzard, I don't own anything inside of the World of Warcraft. Why the hell would I be taxed on property that belongs to someone else?
    • Re: (Score:3, Informative)

      According to Blizzard, I don't own anything inside of the World of Warcraft. Why the hell would I be taxed on property that belongs to someone else?

      I believe they are saying that while the items in the game don't have value, your time spent acquiring them does, and when you exchange the fruits of your "service" that you provided by acquiring those items for someone else and receive payment for this, that is taxable income.

  • by ConfusedSelfHating ( 1000521 ) on Thursday October 19, 2006 @01:48PM (#16505533)
    Your wife or girlfriend's body is not for sale. However there are some people who would pay money to sleep with her. Only losers use prostitutes, but it takes bigger losers to pay real money for online equipment and characters. The fact that you have no intention of paying for it doesn't matter. It only matters that somebody would.
  • Revolution (Score:3, Insightful)

    by Zugok ( 17194 ) on Thursday October 19, 2006 @01:59PM (#16505757)
  • by jafac ( 1449 )
    They can tax my Meat when they pry it from my (Cold Damage), Beaten Up(3), (eXtreme Mittened) hand.
  • Simple Solution! (Score:3, Insightful)

    by vertinox ( 846076 ) on Thursday October 19, 2006 @02:25PM (#16506279)
    Just have your friendly GM go into the MMOG and magically make Gold just for the government.

    Might be a problem with inflation if those IRS agents decide to buy mounts.
  • The goal of the forthcoming Joint Economic Committee study is to help lawmakers understand the issues involved and head off any premature attempt to impose a tax on virtual economies,

    How the heck would the government spend a few Neopoints from Neopets?

    Maybe the game sites need to be sure the point system in the game is properly listed as having a cash value much like coupons did for a while. Remember when states wanted to charge a sales tax on cents off coupons? The coupons started having a cash value of
  • After reading TFA, it's not completely clear. Are they talking about taxing in-game transactions, or taxing in-game content sold for real world $$? Because the former is beyond ridiculous, while the latter actually sounds pretty reasonable. Of course, then there's the fact that most MMOs make it 'illegal' to sell in-game content for real-world $$ in the first place. The only real exception I can think of is Second Life.
    • by KDR_11k ( 778916 )
      Illegal doesn't mean untaxable.
      • by Endo13 ( 1000782 )
        No one said it did. Nor did anyone ask if it did or not. So I fail to see what relevance your post has. The part of my post that you're apparently trying to respond to was just a side-note observation that with most MMOs, trading in-game content for real money isn't supposed to happen in the first place. And implied with that was that as a result, it shouldn't be worthwhile attempting to tax this at all. Except perhaps in the case of Second Life, where people create their own in-game content which can then
  • by SpacePunk ( 17960 ) on Thursday October 19, 2006 @05:23PM (#16509363) Homepage
    If the IRS accepts payment in game plat, gold, credits, isk, etc...

  • Other people have said this, but I'll put it in my own words:

    If I ever wind up with a real world tax liability as a result of a transaction that occurred entirely in-game, then my time playing such games is at an end. Period.

    I am OK with taxing income when someone sells in-game assets for real world money. This is as it should be. But if I wind up owing the IRS money because I pick up the Sword of a Thousand Truths off of a raid boss in WoW, then my days playing such games is over. I doubt I am the
  • movie scarface...

    WTF kind of artform have we created?
  • Under current law, Saxton said if a transaction takes place solely within a virtual world there is no 'taxable event.'

    On the other hand, reporter Julian Dibbell wrote an article on whether gamers should pay real-world taxes on virtual treasures [legalaffairs.org] and got a different opinion from IRS's Business and Specialty Tax Line.

    "We just had this little discussion," [Mrs. Clardy, badge number 7500416] said, almost giggling. "And it sounds to us like [the online trades you've described] would be--yes--Internet barter."

  • It is fairly easy to argue income tax should always apply. I enjoy my job but that doesn't excuse me from paying tax. Any activity where I end up with more real world cash then when I started it is an income and should be taxed.

    In fact as a programmer I could do most of my current work inside secondlife, but wouldn't expect this to save me any tax.

    However when it comes to sales taxes it is much harder. When you sell an ebook or video form a website you have to pay sales tax (ignoring all the complex cross-b
    • by Endo13 ( 1000782 )
      I agree. If anyone is making a real-world profit off in-game IP then yes, it's fair to expect them to pay income tax on that income just like any other source of income. But if that's what this whole article is about, I don't see what the big deal is. You're already supposed to pay income tax on all sources of income, regardless of their nature. (With a few exceptions, such as 'gifts' from individuals.) Taxing the conversion of Linden to real money shouldn't be all that difficult to do at the time the trans

Administration: An ingenious abstraction in politics, designed to receive the kicks and cuffs due to the premier or president. -- Ambrose Bierce