Julian does Taxes
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.
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.
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.
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.