[...] The taxman doth not cometh aftereth all From Raph’s blog. It looks like the chairman of the Joint Economic Committee of the Congress of the United States (bureaucrates just love long titles) thinks that it would not be wise to tax virtual economies. At least not until they understand them further. [...]

[...] Economies Virtual Economies: “As virtual worlds economic activity and populations grow, the importance of Real MoneyTrade comes to the fore. When does fraud inside game worlds become illegal? when do earnings from online worlds become taxable? [discussion], and what happens when real day traders get interested? [more inside]” [...]

While the US legislature seems to be taking the view that once virtual transactions cross over into real currency then that’s when the taxman should get interested, I rather worry that our, uhm, reactionary leader is more prone to try grabbing virtual assets if he can be persuaded there’s any way of doing it.

/me wanders off humming “That’s one for you, nineteen for me… “

[...] Michael (raccaldin36) wrote,@ 2006-10-19 13:32:00      Virtual Citizenship Michael Chui said on October 19th, 2006 at 1:32 pm: Steven, there’s a difference between that which is true now, and that which could happen in the future. It makes no sense for me to say I’m a citizen of Earth, right now, but in the future, it might be an extraordinarily significant statement.Thought experiment on that tangent: I don’t know the particulars of how foreign residents are seen in most countries, but I know it’s possible for non-citizens to reside in most countries. Using similar law, we could renounce citizenship to our country of residence and theoretically become citizens of a virtual world that has no affiliation to a single country. That brings up the question of how deportation would work… but I think you could work around that by just tossing them in jail. =PIt’s an idea.http://www.raphkoster.com/2006/10/18/the-taxman-doth-not-cometh-aftereth-all/#comment-31248(Post a new comment) [...]

Wow, excuse my negative borderline racist attitude there. That came off harsh. But I’m not taking it back.

Its quite obvious that the gaming industry is a huge target for taxation and VW are part of that target, especially whereas the gaming industry itself fails the test of defending itself against the violence in video games fanatics and now has the APA on its case.

The only thing a badly thought out taxation policy will do is drive down profits, drive gamers off any kind of trackable grid into more grey market activity, and force games (read job, revenue, taxes, infrastructure, investment) to go elsewhere, and piss everyone off in general. The policy makers need to understand this subject as well as possible by bringing in industry stakeholders and consumers.

Gamers are notoriously sensative to price fluctuation, its the same demographic that now demands its content for free (ala Myspace and YouTube). If Congress crafts faulty legislation around game taxation they’ll drive games to be made and monetized in a manner that avoids those policies, rather than captures revenue.

Further thinking of the taxation in standard IRS “taxable events” forumlas will be difficult, since avoiding a conversion of virtual property and transactions requires minimal effort and a few intermediaries to stay off grid and in the grey markets.

Available options:

Flat tax basis
(tax the game, cost likely passed on to consumers, which means gamers will choose free game models)

Require Tansparency
(Player account balances/transactions somehow tracked and reported (also a good mechanisim for game companies to catch RMT if the regulatory framework requires the tracking) but this is intrusive)

Tax on Currency in Circulation
(Government taxes the currency in total circulation, but this gets into valuation issues, (FEDRAL RESERVE ratchets up the dollar to GP valuation for DungeonWelp Online, inflation imminent!) circulation issues)
This also puts the burden on the game companies, who are experiancing higher production costs, not good

Taxation on a “Taxable Event”
This requires online land barons, millionaires, and gold farmers to self report. What happens when that online persona is in fact a 15 year old Daton Ohio kid, it only takes a few insidence reportable in the media where Junior ruined his and his parents lives by becomming rich in an online game and failing to report it causing hardship, to generate a backlash, so now video games can cause violence and get you jailed for tax evasion? Wow….Im thinking thats not going to spin to well with those who purchase and pay for the bandwidth (parents).

The fact of the matter is the economy changed, it trancended what was once a solidly understood mechanisim. Taxing a VW is like taxing a garage sale, but worse, its a garage sale with nothing actually for sale, the items are virtual, they are non-atomized
goods that aquire value only in referance to the VW’s community placing value on them.

Congress should avoid this whole subject for another 10 years actually, except for security and money laundering related issues (easily resolved actually) because this is the area where innovation is going to flow from, its the area that allows news feeds, web browsing, shopping and watching YouTube in a VW will be comming from. The creators and users of this space dont even quite understand the ramifacations of this space yet, and the government stifling it through regulation and taxation will only cause it to be created in places outside thier juristiction.

Also, can we please stop pretending that there is a legal entity called a “virtual world”?

Well, without that pretense, there is no issue. I didn’t get a Plus Seven Sword of Dragonslaying, I got some ones and zeroes stored on a hard drive that I’m renting access to.

Thought experiment on that tangent: I don’t know the particulars of how foreign residents are seen in most countries, but I know it’s possible for non-citizens to reside in most countries. Using similar law, we could renounce citizenship to our country of residence and theoretically become citizens of a virtual world that has no affiliation to a single country. That brings up the question of how deportation would work… but I think you could work around that by just tossing them in jail. =P

It’s an idea.