Here come the tax men!

 Posted by (Visited 4163 times)  Game talk
Oct 162006
 

Virtual economies attract real-world tax attention – Yahoo! News

“Right now we’re at the preliminary stages of looking at the issue and what kind of public policy questions virtual economies raise — taxes, barter exchanges, property and wealth,” said Dan Miller, senior economist for the Joint Economic Committee of the U.S. Congress.

  22 Responses to “Here come the tax men!”

  1. I saw an article today that Reuters was setting up a news bureau inside Second Life. Not related to taxes, but I figured you’d find it interesting.

  2. I have to admit seeing the title on my RSS links then being unable to reach your website for about 15 minutes was… amusing.

  3. New Beatles Lyrics-
    “If you make a virtual world I’ll tax your pixels”
    “Cause Im the Tax Man, Yeah, yeah, the Tax Maa-aaan”

    Not sure if I feel more uncomfortable that he’ll have to explain what a VW is to some institutional and out of touch economists who will make recommendations to the congress about tax regulations that will likely end up completely misguided, or the fact that members of congress may be running around SL dressed as large teddy bears in panties…

    Oh the horror….

    What might be seriously intertaining is if Rupert Murdoch suddenly found News Corp strapped with a retrospectivly applied Tax burden from IGN’s lucrative RMT business.

    RM: “You mean those 30m hits a month on IGN werent people looking at game ads?????”

  4. Interesting read. I’ve read a couple of similar articles in the past.

    While I won’t be surprised with ANYTHING the government pulls out of it’s pocket, I would hope that the taxation of virtual goods would only appear in the actual transactions where people profit in RL currency off of the virtual item sales. I don’t want to be suddenly liable for $5 in taxes when I get a blue drop in WoW, just because some ass keeps selling that drop for $20 on eBay. I don’t think devs would want that either, as it would seem to diminish interest within the playerbase.

    Ultimately, what I think we’ll see is the government make some kind of mildly-abrasive ruling on these items, and developers swerve around the ruling by changing the nature of items, like making every item in the game soulbind on pickup, so that there is no transferable value to them.

    Good side-topic though: would congressmen be more likely to be teddy bears in Second Life or gnomes in WoW?

  5. […] Comments […]

  6. would congressmen be more likely to be teddy bears in Second Life or gnomes in WoW?

    In Second Life, they are strong male role models personally investigating the truthiness of online predators in social spaces. Initial reports draw no conclusions.

    In World of Warcraft, they play Dwarven Paladins and sing Sailor Moon’s signature declaration as their battle cry, with the special ability Filibuster usable only in times of war, which fortunately in WoW, is always.

    that he’ll have to explain what a VW is to some institutional and out of touch economists who will make recommendations to the congress about tax regulations that will likely end up completely misguided

    He’s closer to them than any of us likely are; I think of it more as, “At least someone has some clue on the subject.”

  7. good point Micheal.

    As to your congressional avatar choices, I think your likely forgeting the penchant of some elected officials for the wierd and uh…strange.

  8. I don’t want to be suddenly liable for $5 in taxes when I get a blue drop in WoW

    Eek, that’s a scary train of thought. What follows logically from that idea? Paying taxes on: growing vegetables in my garden; mowing my own lawn; painting my own bathroom; cleaning my own house; and changing the oil on my car.

    Still, if we could write off all the Soulbound items we end up eventually selling to a merchant, it might be a boon…

  9. I wonder if those RMT groups are going to end up incorporated and writing off costs. If taxing profits happen, this is almost certainly going to happen. The bad thing is that this “legalizes” RMT in games, no matter what the game producer says about it. I suppose it’s unavoidable.

  10. But I don’t like it.

  11. A cool thing would be if you could somehow swing it so that the profits of online personas on the web are taxable – but by the UN. The web is international, after all, and I suspect that the United Nations would welcome a budget increase.
    (Hm, I wonder what it’d take? Companies situating key servers in the Antarctic, perhaps? Or would it just require paperwork?)

  12. My first thought is how idiodic this is. Real life taxes on virtual money that who owns? I think ownership of the data and pixels will be the hardest hurdle.

    I don’t own the gold coins my WOW character makes? If I make a billion gold but never sell a single coin on ebay and cancel my account what do I need to pay taxes on any of it for. It has no value.

    Now If I make a sale on ebay and they want to tax the money I make on a sale then I don’t like it, but it’s understandable.

  13. It would be an effective way at stopping illicit RMT –

    American based RMT companies use off shore farmer teams –

    IF the RMT company is taxed here in the US, most likely that will push their base of operations overseas as well.. Since their overhead is so low, their profit margins are huge, meaning high taxes.

    Pushing them overseas is a good thing – if laws are applied correctly –

    Trade tariffs and the new gambling laws could be imposed and further drive their profits into the toilet.

    Now, if they still try to get around the system, there’s always the possibility of tax evasion charges.

  14. Amaranthar-

    “I wonder if those RMT groups are going to end up incorporated and writing off costs. If taxing profits happen, this is almost certainly going to happen. The bad thing is that this “legalizes” RMT in games, no matter what the game producer says about it. I suppose it’s unavoidable.”

    That goes both ways, CCP banned and fined a guy -500m ISK, Blizzard banned 70,000 asian accounts and 11m gold recently.

    Now whats the consequence to the players? aquiring new accounts, leveling up those accounts, farming more gold?….guess who benifits from that?

    I’d like Vevendi to address thier heavy investment in Chinese broadband infrastructure in thier next annual report (and why), but they wont.

    If you legalize something it means people have recourse, and a sweat shop is a sweat shop weather its making Nikes or Farming in a VW, and those workers have no recourse to legal action if harmed, either way game companies should not support it tacitly or implicitly, and neither should players.

  15. When are gamers gonna get their act together and start using a little political leverage. I am sure we don’t have many voices that represent us, while the Anti-gaming side has Jack Thompson. With the sheer numbers of people involved in one sort of online game or another, from second life to sims to WOW, there has got to be enough numbers to apply a little pressure on the hill. Still we have politicos that grab on to something like Hot Coffee and Second Life brothels and Thompson gets more air time on CNN or whatnot, other companies start saying, “Thank god it wasn’t us!”

    If the IRS ever got into gaming, it would get even worse. Just because companies don’t enforce their EULA’s well enough, the rest of us would face taxation because we managed to get a purple glowie in game. There has got to be a time for gamers to unite for a cause. Games are becoming more and more realistic, the boundaries of gaming content are no longer limited, All the while, we are evolving into the Tobacco lobby in that politicians say we are bad for society, and yet tax the hell out of us to fund some wildlife refuge to protect the speckled tree frog.

    Alas, I do not think Taxation would be possible in a virtual world, The internet crosses too many boundaries and go into too many households. How many asians play WOW? How could you tax THEIR transactions? That doesn’t mean it would stop congress from earmarking 7 billion dollars to investigate taxation of virtual worlds. That way the senators can do in depth investigations. Conincidentally, Alienware’s profits will shoot through the rough as 23 top of the line gaming rigs get sent to the D.C. area.

  16. Allen said:

    That goes both ways, CCP banned and fined a guy -500m ISK, Blizzard banned 70,000 asian accounts and 11m gold recently.

    Now whats the consequence to the players? aquiring new accounts, leveling up those accounts, farming more gold?….guess who benifits from that?

    What about legal recourse? A corporation set up to make money, in a form that’s not illegal under US law (at least directly), all of a sudden has assets taken away from them? This could get very messy, I think. What about the law that was passed last year or two years ago? The one about not being allowed to use software in unintended ways. Does this protect game developers from this kind of risk? If it’s questionable, then I’m sure it’s going to end up in court.

    I’m also wondering what kind of laws pertain to outsourcing, and if that would affect anything here. It seems than not incorporating and just reporting the income would be the safe way to go (for them, who I consider scum). It’ll be mildly interesting to watch how it pans out, as well as greatly annoying for us gamers. Even moreso for the developers and producers, I’m sure.

  17. -“This could get very messy”-

    Thats what I meant about the IGN comment, the IRS has ZERO issues with assigning retrospective tax burdens on companies. Ask an employer whos had thier independant contractors reclassified as employees how good this particular little IRS trick feels.

    What I meant was that once an organization legally forms, they give thier employees legal status. Once you have legal status you have standing to sue, under national and international law. Thats why RMT sweat shops will ever go legit., but that doesnt mean companies or players should be RMT tolerant.

    If they (Game Company) want it they should impliment it in the game mechanic, it seems that its less harmful that way, (and keeps everyone from the game company to the players in the loop) and less chance Mr. Taxman will show up at the office one day….the alternative it seems is to ignore it, and the least favorable route it would seem is to facilitate it.

    Mike G-

    I totally agree with you, the trick is getting gamer and game company buy-in, maybe we can get Raph to go to bat for us!!!

  18. Legally and conceptually it would be a real mess (not a virtual one, heh). For example if you implement taxes what happens to gamers out of the country? Do they work free of taxes or are they doubly taxed (their country and the US?). If it’s the former then US players make characters on out of country servers (like let’s say Canada, good ping) and if not then you’re doubly screwed. After all if a server is in another country, and players play in that country, and the service is given there then its no longer part of the US juridiction now is it?

    Worse still, game npcs that buy your stuff are actually walking money printers (never saw an npc in Blizzard run out of cash, lol) so technically printing money is bad too. Also the incident that others mentionned with Blizzard destroying gold would unimaginable since technically destroying money *is* illegal.

    What a governement can do at best is tax a service like the character transfer service from the company itself or Ebay. Other then that however you are opening the door to a flood of ways that a company could bypass the law by using another country or simply moving. Who wants to open the gate to major MMOs moving to other countries?

  19. Eek, that’s a scary train of thought. What follows logically from that idea? Paying taxes on: growing vegetables in my garden; mowing my own lawn; painting my own bathroom; cleaning my own house; and changing the oil on my car.

    Personally, I think this will end up being covered under the hobbies section of the tax code (I forget the numbers, but you can make up to a certain amount on your hobby before you have to report it). This will exempt most gamers from having to worry about it.

    However, Julian Dibbel made what? $40,000 in one year through RMT. There’s the Second Life land developer who made over $100K and that SWG exploiter who made $1.5 Mil and on and on. I think those people should be taxed on their income … it’s very real indeed.

    Of course, there is a long laundry list of other matters to be settled first, foremost being a legal precedent on whether Virtual World property is considered “real” (I don’t think this has been done in the US yet).

    Oh well, that’s my 5.4 Linden Dollars 🙂

  20. Just as a quick follow up (man, I’ve been writing about this issue all night), I believe that any legislation of RMT should be patterned on commodities trade. This idea will make VW property ownership disposed to the same risks and governence of owning corn, oil, steel, or Betamax machines. If you sell it for a profit, you get taxed, and if the commodity tanks … well, you bought it.

    As far as the international debate on RMT is concerned, I’m still at a loss. That arguement is for people who are much smarter than me to figure out.

  21. Interesting note on the commodities trade. I always assumed that, if this went anywhere, it would revolve around however it works for general gambling casinos. Don’t gamble much, but from what I’ve been told, if you… say… won $50,000, then lost $30,000 of it before you cashed out, you’d only be held responsible for the cash-out value.

    If that’s true, MMO’s could fit into that analogy rather well. The winnings and losings in the game don’t matter, but the cash-in (RMT in), cash-out (RMT out) figures do.


    That wouldn’t help much with the problems of using MMO’s as money laundering devices, but it would place a more reasonable tax burden than… say… attributing barter laws to online games.

  22. […] property, pointing specifically to the selling of gold, characters, and things of that nature. https://www.raphkoster.com/2006/10/16/here-come-the-tax-men/#comment-29049 This may seem stupid to you, and not likely to pas a full congress, but consider the actual […]

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