The tax man pwneth
Over at Legal Affairs magazine, Julian Dibbell has written an article wondering if gamers “should pay real-world taxes on virtual treasures.” The argument goes like this: If I kill a monster or player in an online game and am rewarded with the Hammer of Uberness, and I then sell it on Ebay for $20, then the Hammer of Uberness is de facto worth $20. It's a clear cut case that the Ebayer is responsible for the taxes on that $20, no question. But that's not the end.
Dibbell continues the train of thought:
in the real world, the suits of armor stashed here and there with their
easily established fair market value? What if I traded those assets for
their value in Ultima Online's official currency, the Britannian gold
piece, rather than for dollars? Wouldn't it be easy to establish their
value in dollars nonetheless and, if I owed American taxes on the
exchange, put a number on the deal that the IRS could grasp and love?
And what about all the other MMO players out there—how long could the
IRS be expected in good conscience to leave the resulting millions of
dollars in wealth untouched?
So if the Hammer of Uberness is worth $20 in real-world cash, then every time someone trades a Hammer of Uberness, even in-game, there could be a tax liability.
Here's where I think the analogy fails. Let's say that Friday night you, me, and some friends get together and play poker. We decide the white chips will be worth $1.00, red chips $5.00, and blue chips $10. Cause we're some high-rollin mofos dontchaknow. At the end of the night, I walk away $75.00 up. (hey it's my fantasy) If I am a law abiding citizen, I will declare that $75.00 as a winning.
The next day I play the same poker game with the same chips, only this time I'm playing it with my niece and nephews, so no money is changing hands. We just get out some chips and start playing. But if the barter system as Dibbell describes it held up, those chips still hold the previous night's value because that's what they were worth at one point. So when I take those cute little angels to the cleaners, my tax liability could be hundreds of dollars. Maybe even thousands, because these little darlings will believe anything.
If you believe like I initially did that selling in-game items for cash breaks the EULA, and therefore negates any fair price established on the item, Dibbell quotes the tax code thusly: “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” Dear god I love this country.
Of course, the point is an academic one. The IRS isn't going to start taxing in-game items anytime soon. They wouldn't do that would they?
February 10th, 2006 at 12:31 pm
Animal analogies are fun.
I see these virtual economies as a large animal that suddenly appeared in our forest. For a while, no one knew it was there, so it went pretty much ignored. Eventually, the IRS and other predators realised this new source of meat .was sitting there. But it might be dangerous, they dont know yet. So there just starting to circle it nervously, trying to figure out what it is.
Eventually, there going to attack. Predators to that. Question is how succesful they will be.
So ya, I would bet on the IRS at least -trying- to introduce taxation in there. Considering the remarkable legal headaches it will produce, I would be quite happy if no one makes an active effort to bring mmo's to there attention