Comments on: Taxation of Virtual Goods http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/ A blog on virtual worlds, games, and digital content, from Matt Mihaly Fri, 22 Aug 2008 02:58:04 +0000 http://wordpress.org/?v=2.0.3 by: Matt http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-73520 Wed, 16 Jul 2008 04:44:38 +0000 http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-73520 You definitely have to report the cash you got from selling Lindens. Any time you gain any revenue whatsoever from any source, you're supposed to report it, essentially. Whether you deduct expenses or not you almost certainly have to report the revenue. You definitely have to report the cash you got from selling Lindens. Any time you gain any revenue whatsoever from any source, you’re supposed to report it, essentially. Whether you deduct expenses or not you almost certainly have to report the revenue.

]]> by: Johnboy67 http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-73519 Wed, 16 Jul 2008 03:58:39 +0000 http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-73519 I kinda understand the property thing in regards to second Life if you pay $200 for it, it grows in value, and you gift it to someone. But how about this: what if you rent your land for virtual currency (Lindens) in which you then sell at the virtual market (for cash)? Since the Linden is an 'aquired good,' and isn't a real currency unless you sell it, do you have to report the cash you got from selling the Lindens (at least as long as you don't try to deduct any expenses)? I kinda understand the property thing in regards to second Life if you pay $200 for it, it grows in value, and you gift it to someone. But how about this: what if you rent your land for virtual currency (Lindens) in which you then sell at the virtual market (for cash)? Since the Linden is an ‘aquired good,’ and isn’t a real currency unless you sell it, do you have to report the cash you got from selling the Lindens (at least as long as you don’t try to deduct any expenses)?

]]> by: Whilehour.Com » Comment on Taxation of Virtual Goods by Two Experts Suggest … http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-36419 Sun, 28 Oct 2007 20:07:47 +0000 http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-36419 [...] Paul Caron wrote an interesting post today on Comment on Taxation of Virtual Goods by Two Experts Suggest …Here’s a quick excerpt [...] […] Paul Caron wrote an interesting post today on Comment on Taxation of Virtual Goods by Two Experts Suggest …Here’s a quick excerpt […]

]]> by: Two Experts Suggest Virtual World Profits May Be Taxable Even Before Conversion to Real World Cash | Virtually Blind | Virtual Law | Legal Issues That Impact Virtual Worlds http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-36044 Tue, 23 Oct 2007 07:10:42 +0000 http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-36044 [...] Though it is widely understood that profits made running a business that deals in virtual goods or services are taxable, tax agencies have not yet seriously pursued enforcement, and there is an open question regarding when these profits are taxable. Two recent presentations suggest that enforcement is getting incrementally closer, both in the EU and the United States, and more interestingly, both commentators suggested that profits may be taxed even before they are converted to “real” currency. [...] […] Though it is widely understood that profits made running a business that deals in virtual goods or services are taxable, tax agencies have not yet seriously pursued enforcement, and there is an open question regarding when these profits are taxable. Two recent presentations suggest that enforcement is getting incrementally closer, both in the EU and the United States, and more interestingly, both commentators suggested that profits may be taxed even before they are converted to “real” currency. […]

]]> by: Roger http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-23209 Fri, 13 Jul 2007 21:50:20 +0000 http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-23209 "And on my mutant third hand," The proper turn of phrase is "And on the gripping hand," Niven and Pournelle are who you can thank for that reference. “And on my mutant third hand,”

The proper turn of phrase is “And on the gripping hand,”

Niven and Pournelle are who you can thank for that reference.

]]> by: Taliesan http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-23163 Fri, 13 Jul 2007 15:59:45 +0000 http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-23163 I wonder what the legal status is of casino chips that have been won but not redeemed for government-backed currency. This would be a close parallel analogy for point #3. Also, a VAT would be an additional tax beyond income tax. So while it's true that declared earnings from transactions of virtual commodities are taxed at an income level, they aren't taxed at a VAT level (GST in Canada). I wonder what the legal status is of casino chips that have been won but not redeemed for government-backed currency. This would be a close parallel analogy for point #3.

Also, a VAT would be an additional tax beyond income tax. So while it’s true that declared earnings from transactions of virtual commodities are taxed at an income level, they aren’t taxed at a VAT level (GST in Canada).

]]> by: Andrew Crystall http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-22516 Mon, 09 Jul 2007 02:06:26 +0000 http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-22516 Matt, in America "location" might not matter. But here it does. And Steven, the way American tax works is...odd, from my perspective. As a question, is there a difference between personal and business commercial business behavior in law? Because it's realtively easy here to say "another business may not make a profit from our work without permission", and far far harder to apply that to a private individual. Matt, in America “location” might not matter. But here it does.

And Steven, the way American tax works is…odd, from my perspective. As a question, is there a difference between personal and business commercial business behavior in law? Because it’s realtively easy here to say “another business may not make a profit from our work without permission”, and far far harder to apply that to a private individual.

]]> by: Steven "PlayNoEvil" Davis http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-22332 Sat, 07 Jul 2007 18:40:10 +0000 http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-22332 @IP - I concur with Matt. This is not a matter for IP law (unless you are actually creating something in Second Life or whatever, but even that is not a matter of taxation, it is a manner of ownership and licensing via copyright, trademark, patent, or trade secret), it is probably closer to securities law. Think of a virtual asset or account as a stock certificate. In the US, you don't pay taxes until you realize a gain on a stock. @Income taxes - also concur. Except some countries use Value-Added Tax (VAT) rather than income taxes as we do in the US. It is interesting, and painfully naive, to hear people act as if it is the responsibility of the IRS to ensure your report your income. The smartest response of the game industry to the idea of virtual taxation is that it is already covered via existing income tax law. The only change would be if someone could get virtual asset sales to be considered capital gains - then you could play the long term vs. short term capital gains game from a taxation perspective. ASIDE: It would be interesting if Blizzard launched the IRS on gold farmers rather than banning them. After all, the income is earned in the US, so even non-US citizens should be paying income taxes on any earnings here... this probably wouldn't mess up in-game gifting as there is no limit on how many people you can gift to, only the amount of the gift ($10K in the US per giftee per year, I believe). If someone claims something is a gift and they are lying, that is fraud and tax evasion.... something government's have little sense of humor about. (standard I AM NOT A LAWYER disclaimer) * Jurisdiction is the big open problem for worldwide online gaming. This discussion feeds right into that issue and it is something the industry needs to take seriously in this area as well as others. @IP - I concur with Matt. This is not a matter for IP law (unless you are actually creating something in Second Life or whatever, but even that is not a matter of taxation, it is a manner of ownership and licensing via copyright, trademark, patent, or trade secret), it is probably closer to securities law. Think of a virtual asset or account as a stock certificate. In the US, you don’t pay taxes until you realize a gain on a stock.

@Income taxes - also concur. Except some countries use Value-Added Tax (VAT) rather than income taxes as we do in the US. It is interesting, and painfully naive, to hear people act as if it is the responsibility of the IRS to ensure your report your income. The smartest response of the game industry to the idea of virtual taxation is that it is already covered via existing income tax law. The only change would be if someone could get virtual asset sales to be considered capital gains - then you could play the long term vs. short term capital gains game from a taxation perspective.

ASIDE: It would be interesting if Blizzard launched the IRS on gold farmers rather than banning them. After all, the income is earned in the US, so even non-US citizens should be paying income taxes on any earnings here… this probably wouldn’t mess up in-game gifting as there is no limit on how many people you can gift to, only the amount of the gift ($10K in the US per giftee per year, I believe). If someone claims something is a gift and they are lying, that is fraud and tax evasion…. something government’s have little sense of humor about.

(standard I AM NOT A LAWYER disclaimer)

* Jurisdiction is the big open problem for worldwide online gaming. This discussion feeds right into that issue and it is something the industry needs to take seriously in this area as well as others.

]]> by: Matt http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-22325 Sat, 07 Jul 2007 17:48:58 +0000 http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-22325 I'm not trying to separate an online identity. I also agree that there is little difference between a forum account and a WoW account. "Location" isn't part of intellectual property I believe. You may have 'rights' to some aspects of 'land' in Second Life but I don't see how they'd derive from IP law. --matt I’m not trying to separate an online identity. I also agree that there is little difference between a forum account and a WoW account.

“Location” isn’t part of intellectual property I believe. You may have ‘rights’ to some aspects of ‘land’ in Second Life but I don’t see how they’d derive from IP law.

–matt

]]> by: Andrew Crystall http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-22189 Sat, 07 Jul 2007 01:44:57 +0000 http://forge.ironrealms.com/2007/07/05/taxation-of-virtual-goods/#comment-22189 Matt, well per a pretty high powered IP lawyer, you can't seperate an online identity like that here. There is very little legal difference between, say, a forum account and a WoW account, essentially. And I'd note that while you don't own IP to the Barby doll, nobody objects when you sell that on either. And while it is basically true that web hosting has no associated IP right, that's not what a package of second life land is, entirely. It is a location as well as a hosting package, and the basic position is the same as, say, a domain (the various .uk's anyway, .com's legal status is fuzzy) - you can have IP rights because of its unique "location". The distinction of "service" you're mentioning, just dosn't exist here. Matt, well per a pretty high powered IP lawyer, you can’t seperate an online identity like that here. There is very little legal difference between, say, a forum account and a WoW account, essentially.

And I’d note that while you don’t own IP to the Barby doll, nobody objects when you sell that on either.

And while it is basically true that web hosting has no associated IP right, that’s not what a package of second life land is, entirely. It is a location as well as a hosting package, and the basic position is the same as, say, a domain (the various .uk’s anyway, .com’s legal status is fuzzy) - you can have IP rights because of its unique “location”.

The distinction of “service” you’re mentioning, just dosn’t exist here.

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