Julian does Taxes
(Visited 15917 times) Game talk
Jan 052006
Legal Affairs has an article by Julian Dibbell entitled “Dragon Slayers or Tax Evaders?” in which he admits that he actually asked the IRS whether or not earning virtual currency in an MMORPG could be construed as taxable income on the grounds that it could be sold for real money.
He got back a non-binding “probably.”
All I can say is, Julian, please stop talking to the government.
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That was pretty much my reaction, too. Unfortunately, eventually someone will.
Well, if you’ve ever owned a business you know a bit more how the tax agencies work. They never want to give up any potential income.
A great example of this is the employee vs. contractor issues. Too many employers were treating employees as contractors in order to avoid paying employer taxes. So, the government came up with rules for who is an employee and who can be considered a contractor. However, if you write the government to get clarification if a worker is an employee or contractor, you can be guaranteed of two things (according to someone running a state-sponsored class on employer taxes):
1. That person is most certainly an employee.
2. You can expect a friendly visit from tax representatives sometime in the near future.
So, the best thing is to not talk to the government about this, because they will probably want it to be taxable. The question is, will it in the eyes of the legislative and judicial branches? The big problem is what Randy Farmer calls the “Parker Brothers Monopoly” argument; the paper money, deed cards, and house/hotel bits in a Monopoly game have an (admittedly low) value. Does that mean that buying houses/hotels from the bank it taxable? Does that mean that buying a property from another player is taxable? In a logical world, no. But, ask the IRS and they will most likely give another, non-binding “probably”.
My thoughts,
These transactions cross state lines and turn dollars for a service. Their status as a sub-culture was not sustainable. One of the risks of anything becoming first successful and then talked about by the mass media is that, eventually, the government will start wondering how to get their share of a potential tax.
It’s not unlike the periodic “tax the Internet” bills that come before Congress.
It was just a question of time. If not Julian, then someone else. Fact is that people who can live on the income they make RMTing are doing so effectively tax free. If they may, say, $40k a year, they’re effectively taking home the same pay as someone who makes a $80k salary (close enough). FICA, worksman’s comp, state and fed taxes, plus the money a company has to pay to keep you on as an employee (which could be as much as 40% beyond).
RMTing has been like a landscaping business, or another cash-possible operation. But because RMTing is now big business, there’s money due. It’ll take some time to figure it out, and I imagine the first stopgap larger operators will try is to move their operation offshore entirely, particularly easy for them given their ability to be a virtual office.
But I’m not complaining. If this limits RMTing as a business in ways the games themselves cannot, then I’m fine with that.
My right arm for an edit/delete button!
I was rereading everything over a TN and realized this isn’t really about RMTs as much as it is about creating a tax base within the game world economy itself.
Err, no thanks there. Yuck bigtime. I can’t see how a developer could justify creating a true player economy, be forced to tax every transaction, and then keep up with how much that ingame currency would be worth in RL dollars to pay the government their due.
[…] https://www.raphkoster.com/?p=246Legal Affairs has an article by Julian Dibbell entitled “Dragon Slayers or Tax Evaders?” in which he admits that he actually asked the IRS whether or not earning virtual currency in an MMORPG could be construed as taxable income on the grounds that it could be sold for real money. […]
I say we end the thread now. Delete the post, comments, and any links back. Delete Julian Dibell. Go back to talking about levels. Mmmm suck.
[…] Legal Affairs http://www.legalaffairs.org/issues/January-February-... posted by majcher at 2006-01-05 17:22# <majcher> oh, jesus, dude. cut it out. <ruprecht> why would anybody try to figure out a way to pay more taxes? what a freak!<[punk]> why not tax the monopoly money you “won” last time you played?<majcher> funny you should mention that. […]
Presumably that would mean that a net loss of virtual currency might be valid as a loss for Tax purposes in come cases?
So could an MMO declare the monetary value of the virtual currency they inject into the game as some form of tax deductable loss?
It’s very simple in my mind: you are investing in virtual currency just like you are investing in the stock market or your 401k. Until you “cash out,” any virtual income is not actually considered taxable. When / if you do get money for virtual currency, though, it should be taxable.
Of course, that also raises issues of whether or not your monthly payment should be deductable as a business expense.
The question (and problem) is one of defining exactly what virtual items are, and who they belong to at any given moment.
Most MMOs that I’ve played claim that items you acquire are never yours – even the avatar you play is not yours, you are merely paying a lease for a connection into a game, which may or may not contain characters you have created, and items on that character at any given moment.
If I decide I need a new pen at work, I go on a quest to the stationary cupboard, and I get a pen. I use that pen, and keep it on my desk. I don’t believe I could be taxed on that pen, unless I put it in my pocket and steal it. The same applies with my use of a shopping cart at a supermarket. Such items are not consumed by me, simply used, and then given back or deleted by the game provider.
If we want to get really pernickety about things, we could say that virtual items are nothing more than a string of bytes in a computer system, resulting in a display on a screen. What difference between my questing for a new sword, and my favourite character in a TV sitcom buying a new coat on-screen, other than the level of interactivity?
If I was ever taxed on in-game items without me selling them, I’d expect any ‘real life’ gaming environment (pool halls, golf courses etc) to have their patrons taxed on any equipment used.
[…] The Virtual Tax Man Cometh – Hooray – The Legitimization of the Virtual Economy Several recent articles have discussed the tax implications of gains on virtual sales – they are likely taxable (and they should be). Wonderful – Virtual Economies are Real! Quickly, I would argue that no taxes need to be paid for “earning” a valuable virtual item during the game as it was paid for via the subscription or other in-game system. However, when and if a player sells a virtual item, they should pay taxes on the “gain”. This does leave open the question of the base value of the item… probably the online market value at time of acquisition. Now the real fun begins. Once a game has a virtual economy, players begin to … use it. Virtual Sex for Currency seems to follow immediately once a virtual economy (virtual assets and/or currency) and communications (chat or voice) are in place (see “sex for sofas” in previous articles). Also, players rapidly find ways to link real money to game currency and assets for an in-game advantage. Basically, those with more money than time exchange with those with more time than money… good old supply and demand at work. Game and online community companies need to find more ways to tap and support rather than supress these budding economic engines. The most powerful success story of the Internet is eBay – not because of the company itself, but because it has unlocked a world of commercial creativity by its sellers – creating new businesses that eBay simply faciliatates. eBay is a “commerce carrier” – just like a telco is a communications carrier. Online games and communities have the potential to be commerce engines – unlocking the creativity and innovation of their participants. After all, in World of Warcraft, the “World” costs a lot of money and maintenance, the “Warcraft” game system is relatively stable and cost-effective to support. In paper-and-pencil role-playing games, game companies recognize that they are mainly selling to the game masters (the equivalent of eBay’s sellers) – who innovate and create and provide value to customers/players on top of the basic game system and components. Once online game companies recognize that they probably should be in the “game system” business, they will truly prosper. And pay taxes. Dragon Slayers or Tax Evaders? Julian Does Taxes Tax on Virtual Goods Probable http://www.secretlair.com/index.php?/trackback/3785/ Posted by SecurePlay in Game Industry, Game Design, Game Commerce at 10:00 | Comments (0) | Trackbacks (0) Trackbacks Trackback specific URI for this entry No Trackbacks Comments Display comments as (Linear | Threaded) No comments Add Comment […]
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