Gaming Tax Treatment of Players in Second Life and World of Warcraft

[The Helper]

Leandra Lederman (Indiana) blogs on Conglomerate about the tax consequences to players in Second Life and World of Warcraft, from her recent article, Taxing Virtual Worlds - these are some excerpts

Second Life:

"How should transactions within Second Life be taxed? My view is that, from a policy perspective, the right result is to tax commercial activity within virtual worlds but not game play. "

World of Warcraft:

"Games like WoW raise income tax issues, in part because items in them, though part of a "game," have real market value. In [my] paper, ... I discuss two of the issues: the taxation of loot "drops" and the taxation of exchanges within the game, such as the exchange of a virtual sword for gold."

https://taxprof.typepad.com/taxprof_blog/2007/04/tax_treatment_o.html

--------------
I cannot believe that these experts are even discussing the taxability of online play. Who would of thought.... - though I do agree with her that if they are taxed they should be taxed when players sell stuff in real life - in other words when they cash out.

 

[21ToWin]

This has gone too far...

 

[DDRtists]

This has gone too far...

.

 

[New_U.S.]

WOW!

I'll just point out the four huge flaws-
1. Selling an account isn't a job. To make people pay income tax for this is the same as making some kid pay income tax because they babysit.
2. Blizzard's policy says you cannot sell accounts. If the government made people who did this pay tax they would (indirectly) support this practice.
3. For someone who sells items for real money, as long as they don't make it into a full scale buisiness (like a gold farm), it not a real place of income.
4. Who are they going to send the tax form to? WoWnage7788? (hope that wasn't a real name) I guess they could do a many IP traces

 

[XXXconanXXX]

The thing about taxing items when they sell them in real life is absurd. Though it is a good idea, it's illegal in the first place, and against Blizzard policy.

Though it sounds like they'd tax trade when you trade items for GOLD, which is completely absurd. Let gamers just have their games.

 

[Peanuthead]

Sick...

So if you buy an ant farm, should you be taxed on every surplus ant you get? Thats basically what they are saying here. They do realize that WoW is a product in itself, that people pay and lose money to 'trade' in it? Not to mention Blizzard has the absolute power to completly screw over the economy...

I agree with taxing gold 'sellers' however. As long as they stop there.

 

[Tonks]

Let gamers just have their games.

The thing is that these games have gone beyond being games. They've evolved into obsessions, taking over peoples' lives.

 

[NoxMortus]

obsessions, taking over peoples' lives.

That's what he said - games.

 

[Marduke]

The thing about taxing items when they sell them in real life is absurd. Though it is a good idea, it's illegal in the first place, and against Blizzard policy.

That doesn't matter.

Drug dealers legally have to pay taxes on all income they make from selling illegal drugs.

Though it sounds like they'd tax trade when you trade items for GOLD, which is completely absurd. Let gamers just have their games.

She clearly says for WoW and similar games, that income taxes should only be applied when selling in-game items for real life money.

Games like Second Life are different in that the in game money IS real money (if I understand correctly). In game money can be exchanged for real money. So items and property in game really do have a monetary value in the game.


I think her point is pretty valid. People are cashing in hundreds/thousands of dollars for gold, items, and accounts - and companies are raking in millions of dollars annually doing the same - and not paying a single dime in taxes. As long as it doesn't go beyond what she said, I really don't see a problem.

 

[Capt Griffen]

For WoW, selling stuff is totally illegal. It belongs to Blizzard. You don't BUY anything - you lease it, same as any other software, under certain restrictions. You cannot tax illegal activities.

For Second Life, who's legal juristiction will it fall under? That would get nasty. Tax cascading would occur as well - rendering it unfair and stupid - as any tax would be indescriminate for which part of the virtual economy it came from, so a sales tax would be retarded.

Drawing money from Second Life and taxing that might be possible, under income tax. It could be taxed based on who is withdrawing the money, and which ever country their income tax goes to.

It would be pretty damned retarded though. You pay money, you get money back (or not).

 

[Asehujiko]

The thing is that these games have gone beyond being games. They've evolved into obsessions, taking over peoples' lives.

Some people are obsessed with games.
Some people are obsessed with cars.
Some people are obsessed with the color of their shirt.

People get obsessed and adicted to anything at any time. Stop hating one of those things for peoples own lack of self restraint.

 

[Marduke]

You cannot tax illegal activities.

Says who? When it comes to income tax, the IRS seems to disagree.
http://www.irs.gov/publications/p17/ch12.html

Illegal income.
Illegal income, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.

Bribes.
If you receive a bribe, include it in your income

Kickbacks.
You must include kickbacks, side commissions, push money, or similar payments you receive in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040), if from your self-employment activity.

Hell, even if you rob some poor schmuck, you're supposed to pay taxes on what you stole.

Stolen property.
If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner.

 

[BlargIAmDead]

So if you buy an ant farm, should you be taxed on every surplus ant you get? Thats basically what they are saying here. They do realize that WoW is a product in itself, that people pay and lose money to 'trade' in it?

No, that's not what they're saying at all. They're saying that if you buy an ant farm, raise a few farm's worth of ants, and then sell those ants to other people with ant farms for real money, that should be taxed. The fact that people pay money to participate in online games doesn't matter, only the fact that they are earning income from these online games. (They might earn some kind of tax break for the monthly fee, though.)

 

[emjlr3]

hilarious, they just banned WoW on my campus cuz it was owning our bandwidth, makes me chuckel

 

[The Helper]

Out of date but Great Justice is Achieved!