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The taxman cometh, part umpteen

January 12th, 2009 (Visited 2555 times) Tags: vw law

By one estimate, about $1 billion in real dollars changed hands in computer-based environments called ‘virtual worlds’ in 2005. … IRS employees have been unable to respond to taxpayer inquiries about how to report transactions associated with them. Economic activities in virtual worlds may present an emerging area of tax noncompliance, in part because the IRS has not provided guidance about whether and how taxpayers should report such activities. To improve voluntary tax compliance, the National Taxpayer Advocate recommends that the IRS issue guidance addressing how taxpayers should report economic activities in virtual worlds.
– from the report summary (PDF) of this year’s recommendations from the national taxpayer advocate.

Via Kotaku, Slashdot, WaPo…

The whole thing is large, if you want to read about everything else beyond virtual worlds.

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Bret said on January 12th, 2009 at 4:42 pm:

Now, as a formerly-unlicensed-tradesperson who sort of reads the EULAs, (aka IANAL) I would say,

-if you’re buying swords in WoW, there is almost certainly an interstate component to the transaction, and there is no Federal excise tax.

-if you’re selling swords in WoW, you’re not selling the item (since it belongs to Blizzard), you’re selling the time you spent getting the item. That just means you file a 1099-Misc. at the end of the year to declare income from self-employment.

But I bet the government will find a way to make it more interesting than that. I wonder if there will be Swiss MMOs and Cayman Island mules in the future.

Rik said on January 13th, 2009 at 1:53 am:

What if I buy the sword with WoW gold, what form would cover that? Can I pay my taxes with in-game coin?

Nils said on January 13th, 2009 at 3:48 am:

IANAL, but I think the whole tax-virtual-economies discussion is silly in such an obvious way that it is hard to see why people waste time on it.

Assume you sell virtual items for real money: Income like any other. Proceed with a normal tax declaration. End of discussion!

Assume you only deal with in-game currency – and I kinda doubt the $1 billion figure for 2005 is real-world cash – they’d either allow us to pay those taxes in WoW-gold too (and what good would that do them? Set up a guild of IRS twinks to pwn all who refuse to pay?) or they set an exchange rate in which case WoW-gold becomes a regular currency and I sure as hell then better be able to exchange ALL my WoW-gold to real money. After all, if I can’t, where’s the very income that they are taxing?

(Naturally, this goes only for real games. Toy-worlds such as Second Life which boast a convertible currency obviously fall under the “it’s normal income, stupid” clause).

I guess next the government will consider a property tax on Monopoly streets and a speed limit for Light Cycles. Then they will round up GTA players for stealing virtual cars and detain them in Hello Kitty Online as punishment. And we’re not even getting started about economy simulation games… Bail-outs for ailing Transport Tycoons, anybody?

As I said: Silly.

KevinMc said on January 17th, 2009 at 6:44 am:

I agree that it’s stupid. I also worry a bit, because this is one of the more serious attempts I have seen to look at what amounts to taxing the drops from MMORPG mobs as if they were real earnings…!

It’s silly, but it’s also scary. We already know there is a serious disconnect between legislators and reality, so something like that might actually pass if left unopposed.

Luckily, I think Blizzard has enough cash to set up a good lobby if they think it becomes necessary… BTW, my wife and I both got a HUGE chuckle over the GTA-Hello Kitty thing!

The taxman cometh, part umpteen

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