Governments looking to tax MMORPG gamers virtual lives.
Discussion
Reuters News link clicky
Mon Oct 16, 2006
Virtual economies attract real-world tax attention
By Adam Pasick
LONDON (Reuters) - Users of online worlds such as Second Life and World of Warcraft transact millions of dollars worth of virtual goods and services every day, and these virtual economies are beginning to draw the attention of real-world authorities.
"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.
"You could argue that to a certain degree the law has fallen (behind) because you can have a virtual asset and virtual capital gains, but there's no mechanism by which you're taxed on this stuff," he told Reuters in a telephone interview.
The increasing size and public profile of virtual economies, the largest of which have millions of users and gross domestic products that rival those of small countries, have made them increasingly difficult for lawmakers and regulators to ignore.
Second Life, for example, was specifically designed by San Francisco-based Linden Lab to have a free-flowing market economy. Its internal currency, the Linden dollar, can be converted into U.S. dollars through an open currency exchange, making it effectively "real" money.
Inside Second Life, users can buy and sell virtual objects from T-shirts to helicopters, develop virtual real estate, or hire out services ranging from architecture to exotic dancing. Up to $500,000 in user-to-user transactions take place every day, and the Second Life economy is growing by 10 to 15 percent a month.
"Ownership, property rights, all that stuff needs to be decided. There's just too much money floating around," said game designer Sam Lewis, who trained as an economist and has worked on games such as Star Wars Galaxies. He is currently lead designer for an upcoming game from Cartoon Network.
"The tax laws don't know how to behave because these are virtual items: ones and zeros on a database we're allowing you to play in," he said
Even if it is inevitable, Lewis is not exactly looking forward to having real-life tax collectors enter the virtual world.
"I'm a designer that thinks any sort of boundaries or rules actually give you an interesting challenge to overcome, but I don't particularly want the IRS coming in," he said.
The rapid emergence of virtual economies has outstripped current tax law in many areas, but there are some clear-cut guidelines that already apply. For example, people who cash out of virtual economies by converting their assets into real-world currencies are required to report their incomes to the U.S. Internal Revenue Service or the tax authority where they live in the real world.
It is less clear how to deal with income and capital gains that never leave the virtual economy, income and capital gains that in the real world would be subject to taxes.
"Let's say the IRS decides they want a valuation of your assets. We don't have a stock market where we can as of the 31st of December, these assets went up, these went down," Lewis said.
Miller, of the Joint Economic Committee, who became interested in the issue when he began exploring some of the virtual worlds in his free time, said he has an open mind about how real world tax authorities should interact with virtual economies.
"We are starting with a blank slate and going through the various dimensions of virtual economies, and seeing where they might intersect with public policy," he said. Miller hopes to have a rough draft of a report done by the end of the year.
But first, he has to educate some of his colleagues.
"I found that talking about this issue with some of the other economists on the committee, they are not really familiar with what a virtual economy is. The idea of Second Life or World of Warcraft or some of these other synthetic universes, they have trouble wrapping their head around it," he said.
However, there are probably some on Capitol Hill who won't require much explanation. "I can almost guarantee that there are some members of Congress spending time in Second Life or World of Warcraft," he said.
Is it April already?
Reuters said:
Mon Oct 16, 2006
Virtual economies attract real-world tax attention
By Adam Pasick
LONDON (Reuters) - Users of online worlds such as Second Life and World of Warcraft transact millions of dollars worth of virtual goods and services every day, and these virtual economies are beginning to draw the attention of real-world authorities.
"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.
"You could argue that to a certain degree the law has fallen (behind) because you can have a virtual asset and virtual capital gains, but there's no mechanism by which you're taxed on this stuff," he told Reuters in a telephone interview.
The increasing size and public profile of virtual economies, the largest of which have millions of users and gross domestic products that rival those of small countries, have made them increasingly difficult for lawmakers and regulators to ignore.
Second Life, for example, was specifically designed by San Francisco-based Linden Lab to have a free-flowing market economy. Its internal currency, the Linden dollar, can be converted into U.S. dollars through an open currency exchange, making it effectively "real" money.
Inside Second Life, users can buy and sell virtual objects from T-shirts to helicopters, develop virtual real estate, or hire out services ranging from architecture to exotic dancing. Up to $500,000 in user-to-user transactions take place every day, and the Second Life economy is growing by 10 to 15 percent a month.
"Ownership, property rights, all that stuff needs to be decided. There's just too much money floating around," said game designer Sam Lewis, who trained as an economist and has worked on games such as Star Wars Galaxies. He is currently lead designer for an upcoming game from Cartoon Network.
"The tax laws don't know how to behave because these are virtual items: ones and zeros on a database we're allowing you to play in," he said
Even if it is inevitable, Lewis is not exactly looking forward to having real-life tax collectors enter the virtual world.
"I'm a designer that thinks any sort of boundaries or rules actually give you an interesting challenge to overcome, but I don't particularly want the IRS coming in," he said.
The rapid emergence of virtual economies has outstripped current tax law in many areas, but there are some clear-cut guidelines that already apply. For example, people who cash out of virtual economies by converting their assets into real-world currencies are required to report their incomes to the U.S. Internal Revenue Service or the tax authority where they live in the real world.
It is less clear how to deal with income and capital gains that never leave the virtual economy, income and capital gains that in the real world would be subject to taxes.
"Let's say the IRS decides they want a valuation of your assets. We don't have a stock market where we can as of the 31st of December, these assets went up, these went down," Lewis said.
Miller, of the Joint Economic Committee, who became interested in the issue when he began exploring some of the virtual worlds in his free time, said he has an open mind about how real world tax authorities should interact with virtual economies.
"We are starting with a blank slate and going through the various dimensions of virtual economies, and seeing where they might intersect with public policy," he said. Miller hopes to have a rough draft of a report done by the end of the year.
But first, he has to educate some of his colleagues.
"I found that talking about this issue with some of the other economists on the committee, they are not really familiar with what a virtual economy is. The idea of Second Life or World of Warcraft or some of these other synthetic universes, they have trouble wrapping their head around it," he said.
However, there are probably some on Capitol Hill who won't require much explanation. "I can almost guarantee that there are some members of Congress spending time in Second Life or World of Warcraft," he said.
Is it April already?
I suppose it was bound to happen one day.
Interesting to see how it will be applied.
Is there any real difference between realising a capital gain on a share or on a property held in a virtual world?
This might have been better posted in the Pie & Piston to reach a wider audience FourWheelDrift.
Interesting to see how it will be applied.
Is there any real difference between realising a capital gain on a share or on a property held in a virtual world?
This might have been better posted in the Pie & Piston to reach a wider audience FourWheelDrift.
F.M said:
Maybe they will want us to tax our vehicles in Grand Turismo 4 too...
A crazy new president in madness...
A crazy new president in madness...
Why so? What's the difference, really, between trading a bastard sword of slashing +9 and trading an equally virtual commodity on the stock market? If at the end of the day you realise a profit on the deal and it winds up in your bank account then it should be accounted for as a capital gain and taxed in the normal way.
FourWheelDrift said:
I'm sorry but how do people make real money playing a virtual world game, it is a game and you have virtual money and buy virtual things but you don't actually have anything because it's a game, right?
My exposure to this is only via South Park's World of Warcraft episode.
My exposure to this is only via South Park's World of Warcraft episode.
If the game uses a currency that has a clear recognised conversion to 'real' money. Then any earnings in the game are little different to your earnings in the 'real' world
FourWheelDrift said:
But you can't spend the money in the real world, you can't buy anything with it. It's the same as winning money in a racing game to buy a car upgrade. It's only make believe.
Right?
Right?
"Second Life, for example, was specifically designed by San Francisco-based Linden Lab to have a free-flowing market economy. Its internal currency, the Linden dollar, can be converted into U.S. dollars through an open currency exchange, making it effectively "real" money"
If it can be easily converted into 'real' money, it is 'real' money.
FourWheelDrift said:
But you can't spend the money in the real world, you can't buy anything with it. It's the same as winning money in a racing game to buy a car upgrade. It's only make believe.
Right?
Right?
Wrong. People can and do trade virtual objects and accounts in the real world - just search for 'ultima online' or 'world of warcraft' on ebay and you'll get an idea. There are 'gaming farms' in the far east where people are paid a few dollars a day to play for hours and hours, making powerful characters that can be sold to people who don't have the time or inclination to do it themselves. Make no mistake, some people take these things very very seriously indeed. You can even buy a virtual house for real money!
Sure it's early days yet, but it's going get bigger and of course the goverment are going to want their slice!
I put a thread up the other week about a WoW account that went for £410... 
I think it wont ever catch on its a complete load of cobblers. Games are a leisure activity and not there to profit. Recently Blizzard have axed thousands of accounts used for farming gold etc and they will continue to do so agressively. Such farming ruins the virtual economy for the rest of us and detracts from the overall experience. When you win an epic item you should have a sense of pride that you have something you worked hard for, and is extremely rare due to the effort involved in obtaining it. You should not be able to hand over a fiver to some git in the far east who is exploiting the game.
If people get caught breaking the rules and profiteering from a game used for leisure purposes then so be it - tax/fine their asses off, but otherwise for the normal, law-abiding gamer we should have to pay jack shit !!
I think it wont ever catch on its a complete load of cobblers. Games are a leisure activity and not there to profit. Recently Blizzard have axed thousands of accounts used for farming gold etc and they will continue to do so agressively. Such farming ruins the virtual economy for the rest of us and detracts from the overall experience. When you win an epic item you should have a sense of pride that you have something you worked hard for, and is extremely rare due to the effort involved in obtaining it. You should not be able to hand over a fiver to some git in the far east who is exploiting the game.
If people get caught breaking the rules and profiteering from a game used for leisure purposes then so be it - tax/fine their asses off, but otherwise for the normal, law-abiding gamer we should have to pay jack shit !!
Edited by lockstock2sb on Tuesday 17th October 17:55
Second Life is pretty unique in having an ingame conversion of currency. However the broader issue is 'how'? Ok. All US MMORPG servers end up with the IRS running around in them collecting real tax on virtual assets. How are they going to tax me? I'm in a different country but happen to be using the same system... and should the UK decide to follow suit and tax such 'assets' then erm... my character and all of its data are stored in the USA.
Data is initself just that, a collection of 1's and 0's that only mean anything when given to the correct program running on the correct system (i.e. feeding WoW's SQL system EVE's Database won't do you much good). The worry offshoot that would come from this is that countries start looking at taxing 'data residents' in their country. So host a website in the states and you'll have to pay tax on it.... that'd be enough to worry me.
Data is initself just that, a collection of 1's and 0's that only mean anything when given to the correct program running on the correct system (i.e. feeding WoW's SQL system EVE's Database won't do you much good). The worry offshoot that would come from this is that countries start looking at taxing 'data residents' in their country. So host a website in the states and you'll have to pay tax on it.... that'd be enough to worry me.
From reading it there are two very clear cut differences here.
1) Is profiting in terms of real money from either transfering the funds gained within the game to real world dosh OR selling your gaming accounts or gains from your account for real money. These will always fall under the capital gains tax ruling as it's classed as additional income.
2) Is profiting virtually from within the game itself whereby you never see any real monetary benefit from it. This shouldn't even be considered for taxation. As someone else said, are we going to get into a situation where you have to pay tax every time you earn enough money in Gran Turismo to upgrade your car? One could argue that you've already paid tax twice in purchasing the game, VAT & Income tax.
1) Is profiting in terms of real money from either transfering the funds gained within the game to real world dosh OR selling your gaming accounts or gains from your account for real money. These will always fall under the capital gains tax ruling as it's classed as additional income.
2) Is profiting virtually from within the game itself whereby you never see any real monetary benefit from it. This shouldn't even be considered for taxation. As someone else said, are we going to get into a situation where you have to pay tax every time you earn enough money in Gran Turismo to upgrade your car? One could argue that you've already paid tax twice in purchasing the game, VAT & Income tax.
Phil Hopkins said:
From reading it there are two very clear cut differences here.
1) Is profiting in terms of real money from either transfering the funds gained within the game to real world dosh OR selling your gaming accounts or gains from your account for real money. These will always fall under the capital gains tax ruling as it's classed as additional income.
2) Is profiting virtually from within the game itself whereby you never see any real monetary benefit from it. This shouldn't even be considered for taxation.
1) Is profiting in terms of real money from either transfering the funds gained within the game to real world dosh OR selling your gaming accounts or gains from your account for real money. These will always fall under the capital gains tax ruling as it's classed as additional income.
2) Is profiting virtually from within the game itself whereby you never see any real monetary benefit from it. This shouldn't even be considered for taxation.
I think that's a pretty fair summary of things.
(1) is surely already catered for with existing Capital Gains Tax and Self Assessment taxation of additional income whilst (2) is patently absurd as everything inside the game is just make-believe until such time as it is converted into real money in which case it falls under (1)
If (2) established the concept of taxing 'virtual profit' would that pave the way for homeowners being taxed on the equity in their house? After all, that's also a virtual profit that is just make-believe until such time as it is converted into real money (ie. the property sold).
Edited by JonRB on Wednesday 18th October 13:28
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