Can I Deduct this Chainmail?
by Mike D'Anna 
Jan 18th 2006 at 12:00PM
Well, it had to happen eventually. With an article published in the latest issue of Legal Affairs magazine, gamer Julian
Dibbel has raised the question: 
are
virtual assets taxable? In other words, should a person have to pay taxes on in-game items they own, if those items
are shown to have a real-world monetary value?
I personally find this issue fascinating, and I can imagine it will be the subject of some very serious debate in the future, with all the money currently being made by gold-sellers & professional eBayers. I would also imagine WoW to be at the center of any debate on this subject, simply because, due to its sheer numbers of players, this is where most of the 'virtual currency' market will be centered, at least for the near future. In any case, the world is a-changin', folks...it might not just be all fun & games anymore...
are
virtual assets taxable? In other words, should a person have to pay taxes on in-game items they own, if those items
are shown to have a real-world monetary value?I personally find this issue fascinating, and I can imagine it will be the subject of some very serious debate in the future, with all the money currently being made by gold-sellers & professional eBayers. I would also imagine WoW to be at the center of any debate on this subject, simply because, due to its sheer numbers of players, this is where most of the 'virtual currency' market will be centered, at least for the near future. In any case, the world is a-changin', folks...it might not just be all fun & games anymore...
Filed under: Analysis / Opinion, Virtual selves, News items, Economy
Reader Comments (Page 1 of 1)
foebea Jan 18th 2006 12:27PM
Absolutley not.
If something like this were to happen, the currency would have to be kept on the exchange system like every other currency, regarded as valid for all debts public and private, and must be based on an item of actual value, such as gold, or diamonds.
This is virtual money, and is not anything that could be taxed in any way. The government already gets money from Blizz, in the form of Taxes. Taxes against real world income.
Leshrac Jan 18th 2006 12:35PM
I can't imagine taxing virtual "income". First of all, this would be ridiculously difficult to enforce unless Blizzard programmed it directly into the code (ie, "if you own an item worth X amount of in game gold, charge Y amount of real-world dollars to the credit card). If something like this were to exist, then that would severely limit the interest in these games, because quite literally, it would actually cost you money for good loot to drop.
However, for virtual items/gold/accounts that you actually sell on Ebay for real-world cash (which I am very against, at least for items/gold... full accounts I suppose are more debateable), I don't see how there is even an argument here... If you make real-world income/money off of Ebay even if it's off of virtual property, then that money is taxable, just as any other form of income is. Now, I'm sure that most people that sell stuff on Ebay probably don't report it to the IRS, and it is probably extremly difficult to enforce, but theoretically, I don't see how that's not taxable.
Fabian Jan 18th 2006 12:51PM
I guess it would be easy to dismiss this issue by making it illegal to sell the stuff. If Blizzard also made the selling of a complete account illegal the issue wouldn't arise.
If they still wanted to raise taxes on that it would be like the government wanting to tax stolen goods (something that can only be made into money by disobeying the law)...
...I don't see any state crazy enough to push through such a rule.
Datyedyeguy Jan 18th 2006 12:56PM
The way I see this happening is like so. You will not get charged just for having items in your bank/character/account/whatever as you earned/found them. If you happen to take these items into the 'real' world though, than a tax could be applied, be it state/federal. Of course, other countries might have it done differently, but as we're supposed to claim every sort of income that we earn in our tax forms, selling virtual items for real money is still income, therefore still taxable.
PodMonkeys Jan 18th 2006 1:03PM
The moment we have to pay taxes with real money for in-game items, is the day the game becomes work. People play games to relax and escape from the real world for a bit. If we wanted to pay real taxes on our computer, we could just go play Turbo Tax.
If someone were to make over a certain amount of real income on the sale of in-game items, then yes, I think they are supposed to report it to the IRS. But charging RL taxes on virtual items you own, or even sell in game, would be like charging taxes on Christmas and Birthday gift giving, or charging an artist taxes on the value of the painting he just created before he even sells it!
If the RL taxes were to happen on just the ownership virtual goods, which as the article quotes "the millions of online game players are collectively holding tens or even hundreds of millions of dollars' worth of these digital assets at any one time." players would suddenly find themselves with not only a $15 month charge, but they'd find themselves having to pay more the higher they progressed in the game. Not only would a lot of game players not be able to afford the game, but there would be no incentive to actually play.
Whats next? Aggravated assault and homicide charges for PvP?
Jeff Kahrs Jan 18th 2006 1:33PM
If virtual items are determined to be property, there will indeed be tort and criminal charges brought against griefers. I mean if my stuff is worth cash and you trash it (or even cost me money by making me use assets I would not have had to use if you had not attacked me [food, water, rebuff reagents] then you owe me for the harm.
I would love to see some parents reaction when they get a class action lawsuit filed against them for the action of their uncontrolled child "Gankzors".
Leshrac Jan 18th 2006 2:17PM
I really think the only thing that you could tax is anything that actually ends up converting to real-world cash, as that would be considered income no different than any other income. Again, I don't think there is any other argument here, and if somehow someone in the IRS saw you selling your character for $1000 on Ebay and then noticed that you didn't report it, I think you would definitely lose if you tried to bring it to court.
The only thing I can think of that might start to gray the line is in a game like Project Entropia, where people actually pay real world money to "invest" in in-game property. For example, very recently someone purchased a Space Station for $100,000. Should he have to pay property taxes on it? This is obviously supposed to be an investment that the owner thinks will eventually net him money, just as if you were investing in some real-world real estate. Is this virtual property taxable?
My personal opinion is that it should not be real-world taxable, but could potentially be taxable (and perhaps is) in game. In fact, the owner of the space station has the ability to tax people for using it, and also for taxing people who "hunt" on it. So, the creators of the space station, namely, the developers, could potentially "tax" the owner with a virtual property tax, which in a way does directly convert to the owner paying real-world money to the developer.
However, for a real world tax, the owner would need to convert his virtual cash to real cash... as soon as that was done, it would be taxable as income by the IRS.
RighteousDork Jan 18th 2006 2:20PM
The selling of virtual items on eBay is not a legal practice, the last time I checked. Didn't anyone read the EULA. I'm pretty sure that selling items and gold on eBay goes against Blizzard's rules. And taxing illegal goods isn't really possible. If it was, my state (KY) would be taxing people left and right for Meth.
Leshrac Jan 18th 2006 2:47PM
One thing I would add is that my theoretical example in Project Entropia would eventually end up with the developer actually paying the taxes on any income it makes from the virtual taxes it imposes on players. This gets a bit trickier, but essentially the player would be handing the developer real money for the taxes it has to pay (since there is a direct economic conversion, quite literally the owner would need to actually "buy" virtual money to pay to the developer... from the developer, which equates to income for the developer). This should be the way any taxation works. In fact, taking this theory to the WoW level, the IRS should theoretically already make tax money off of the players, since they pay a $15 fee per month to Blizzard, Blizzard has to report it's income, and then pay taxes on it. A little bit of your $15 does indeed go directly to the IRS. Any money that people make from selling virtual property for real-world money is also theoretically taxed (but perhaps difficult to enforce). The IRS directly taxing virtual property in a game would be akin to you having to figure out how much your real-world DVD collection is worth every year just so you could send the IRS your property tax... that really would be double-taxation, since you have already paid taxes on your income and your purchase of the DVDs.. should you be taxed on simply having the DVDs? =)
bobilox Jan 18th 2006 3:26PM
So would virtual business follow. Could players join guilds that exist to make virtual money by heiring players to collect loot that is turned over to the company. The company, in turn, provides employees with equipment and an hourly wage based on lvl. The company with holds a part of the players income to pay taxes to the government. Now, when the player retires, would they be elgeable for real world Social Security?
Leshrac Jan 18th 2006 4:17PM
bobilox-
As soon as the "virtual" business starts realizing "real" profits, it is now a "real business." In fact, these businesses already exist. I'm not sure about in the US, but I definitely know there are people out there that attempt to make all of their income from sale of virtual property, and then need to report that to the US. In fact, the article linked to here talks about such a person, and in fact, that person is the idiot who is somehow suggesting that just the mere ownership of virtual property should be taxed.
In any case, the business you suggest is no different than any other business. If there are real wages, a real employer, and real money changing hands, it acts exactly as a regular real-world business and yes, that player would be eligible for Social Security from the government assuming he (or his company) reports the income to the IRS.
Let's look at it another way... how is employing someone to "farm" gold/items so that they can in turn sell the items for a profit any different than employing a programmer to write software that will eventually be sold for a profit? There is no difference in business terms. While I am strongly against this because I think it ruins the game economy, it is not illegal and most certainly should be subject to the same kind of taxation that any other business should be subject to.