This is a document that perhaps should get framed, just because it’s a landmark for it to exist at all. I speak of a Congressional press release about taxing virtual worlds (PDF) that actually responds to some of the MMORPG sites, including perhaps THIS one, about the issue of taxation in virtual worlds. It’s damn short, but an excerpt is after the fold anyway:
“There is a concern that the IRS might step forward with regulations that start taxing transactions that occur within virtual economies. This, I believe, would be a mistake,” Chairman Jim Saxton said today.
That would be “Chairman of the Joint Economic Committee of the Congress of the United States.”
Based on existing law, if an individual generates cash income in U.S. dollars from transactions in virtual economies, the question may arise whether a tax is due on that real-world income. However, if the transaction takes place entirely within a virtual economy, then it seems there is no taxable event. Such distinctions should be addressed and resolved in a common-sense manner.
Clearly, virtual economies represent an area where technology has outpaced the law. The goal of the forthcoming JEC study is to help lawmakers understand the issues involved and head off any premature attempt to impose a tax on virtual economies.
To me, the longer-term question is when Congress will take up the issue that technology in this case may have outpaced the notion of countries. It’s not hard to imagine a virtual economy that exists within multiple national jurisdictions at once, via peer to peer or distributed server tech, for example. When you cash out, then what? What if it’s used purely to transfer money?