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Title: RMT set to bring taxes to online gaming
Post by: geldonyetich on December 05, 2006, 09:39:51 PM
http://news.com.com/IRS+taxation+of+online+game+virtual+assets+inevitable/2100-1043_3-6140298.html?tag=st.num
http://www.gamespot.com/news/6162654.html
http://www.gucomics.com/archives/view.php?cdate=20061205

Though I'm an Internet Eternity Late on this, I thought I'd bring up this topic.  Basically, some experts are predicting that taxation of owning virtual items is an inevitability.  The implications are interesting, to say the least.  Personally, I'd just like to string up RMT traders by their gonads for requiring me to hire a tax consultant because I play MMORPGs.  Then again, I've been wanting to string up RMT traders by various painful parts of their anatomy for years just for dragging real life commercialism into my fantasy world.


Title: Re: RMT set to bring taxes to online gaming
Post by: Strazos on December 05, 2006, 11:09:35 PM
Good job assholes. Way to go with ruining an entire genre of gaming if this goes through.


Title: Re: RMT set to bring taxes to online gaming
Post by: Endie on December 06, 2006, 01:42:04 AM
I'm not even slightly up on the US tax laws, but in the UK I'd expect any liability for tax to follow the Capital Gains Tax model rather than income tax.  That is, your liability would be calculated at the point when the gain was realised: when I sold my account or some gold for cashola. If you play the game and never convert your loot-mountain into pounds sterling, then you should be fine.

Of course, it might be different for the US, since their currency is, at the current rate, heading for parity with the SWG credit.


Title: Re: RMT set to bring taxes to online gaming
Post by: Simond on December 06, 2006, 02:35:33 AM
Yeah, I'm guessing that if this ever goes anywhere (which it probably won't), it'll be based on how much RL money you make from in-game sales, rather than how much gold you looted from that murloc/froglok/whatever.

Screws over Second Life, though.


Title: Re: RMT set to bring taxes to online gaming
Post by: Endie on December 06, 2006, 02:45:31 AM
Via TN:

The Onion's view (http://www.theonion.com/content/node/56051).


Title: Re: RMT set to bring taxes to online gaming
Post by: Ironwood on December 06, 2006, 02:55:43 AM
 :-D


Title: Re: RMT set to bring taxes to online gaming
Post by: CmdrSlack on December 06, 2006, 07:08:45 AM
Meh.  I doubt you'd have to pay tax unless you cashed out.  Doing it any other way would just be stupid, especially given the rapid rate of change in the value of virtual items.  So yeah, it won't really hurt the average player, just those who make cash via playing.  Second Life residents who live in teh U.S. and make cash from virtual businesses should already be reporting income derived from SL anyway.  I really don't see how this should inspire any sort of sturm und drang reaction.  The IRS wants to tax income -- film at eleven, we now return you to the Obvious News.


Title: Re: RMT set to bring taxes to online gaming
Post by: Venkman on December 06, 2006, 07:12:42 AM
I couldn't care less if a bunch of leaches get taxed all over the place.

What I do wonder about is microtransaction-based games. You put money into the game, you buy stuff against that debit account, you turn around and sell it ingame, and then you extract cash from the game. Who's responsible for the taxes? You? The company? Both?

Extra-game transactions are only slightly easier to track, but I doubt it'll matter much. The big outfits will just pass on the cost to their consumers, and the consumers will end up getting audited until they start itemizing the transactions. Welcome to the real world.


Title: Re: RMT set to bring taxes to online gaming
Post by: SnakeCharmer on December 06, 2006, 07:28:03 AM
Anshe Chung has some splainin' to do


Title: Re: RMT set to bring taxes to online gaming
Post by: Endie on December 06, 2006, 07:40:34 AM
A good guide as to whether the taxman sees something as taxable would be this:

If some terribly hip Web [spit] 2.0 company decided that part of its Christmas bonus would be 500 gold for the employees' favourite WoW characters, then would the Inland Revenue (or IRS or whoever) see that as a taxable benefit-in-kind?

I'll bet they would.  In a shot.  Possibly, in the UK, they'd have a shot at it now in such a clear-cut case, without even bothering to issue an IRxx advisory notice.


Title: Re: RMT set to bring taxes to online gaming
Post by: Righ on December 06, 2006, 07:50:55 AM
A good guide as to whether the taxman sees something as taxable would be this:

Is there money, notional or otherwise being earned, circulated or banked which the parasitic government can leech off?


Title: Re: RMT set to bring taxes to online gaming
Post by: tazelbain on December 06, 2006, 07:51:26 AM
I don't see how its any different than gambling.


Title: Re: RMT set to bring taxes to online gaming
Post by: Endie on December 06, 2006, 08:00:25 AM
I don't see how its any different than gambling.

Spot on: neither can use the defence of ludus to escape taxation.  Gambling profits, except in a jurisdictions who seek to profit through the provision of secondary services, is widely taxed.  Online gambling similarly (the UK is making a play to be a hub for that).


Title: Re: RMT set to bring taxes to online gaming
Post by: Lantyssa on December 06, 2006, 09:26:07 AM
Can I take a deduction for losing income in an MMORPG then?


Title: Re: RMT set to bring taxes to online gaming
Post by: geldonyetich on December 06, 2006, 09:42:32 AM
Good question.  I think my subscription fees should count as a business expense.


Title: Re: RMT set to bring taxes to online gaming
Post by: WayAbvPar on December 06, 2006, 09:46:26 AM
Can I take a deduction for losing income in an MMORPG then?

If it comes to it, I am sure they will treat it the same way they treat gambling income- you report ALL of your wins (or loots), and can then deduct your losses UP TO THAT AMOUNT. And people wonder why many gamblers don't report their earnings with total disclosure...*



* I do, but I am a sucker for doing things legally. I would not fare well in a PMITA pen.


Title: Re: RMT set to bring taxes to online gaming
Post by: Morat20 on December 06, 2006, 10:15:15 AM
This will go nowhere. The only place the IRS has a legitmate and reaslistic interest is when virtual property changes into real cash -- if you sell your kick-ass WoW character for 200 dollars, you owe the IRS on that 200 bucks.

The IRS is only going to tax when real money changes hands. It's the only place they CAN tax. The real reason for the suddent speculation is what sort of tax would apply? Sales tax or capital gains? What's the nature of virtual property, like a character? Is it an investment that matures? Or a commodity that can be bought and sold?

They're only going to be interested at the conversion point between virtual property and cold, hard, cash. The only real question -- the rest is speculation and smoke and mirrors that will go no where -- is what sort of transaction is it really, and what (if any) taxes are applicable?


Title: Re: RMT set to bring taxes to online gaming
Post by: Trouble on December 06, 2006, 10:42:33 AM
The thing that's getting everyone kicked up into a frenzy is the idea that they'd be monitoring and taxing ingame transactions. I hope this is just sensationalism on the part of whoever is trying to get famous off this story because it seems absolutely ludicrous. I can't imagine any sort of system for pricing and monitoring transactions in a virtual world that doesn't create an incredible amount of beauracratic overhead to the day to day operation of these games making them pretty much untenable.

The taxing of gains made from selling virtual assets for real money seems perfectly plausible to me, in fact it seems like that should be already the status quo. It's the same as any other capital gains. You sell something you have and you pay taxes on it, simple as that.


Title: Re: RMT set to bring taxes to online gaming
Post by: Murgos on December 06, 2006, 10:51:17 AM
Well, except for the whole your not actually selling anything when you sell MMOG items or characters.  You are merely transferring who is allowed access.

The whole thing is a great example of how value is created though.  There is no intrinsic worth to these virtual items, any MMO provider could generate billions of whatever item they wanted to in moments.


Title: Re: RMT set to bring taxes to online gaming
Post by: Trouble on December 06, 2006, 10:55:36 AM
I don't really know anything about the law, but I'd guess that tax law doesn't care about the finer details of whether you own the account or are just selling access. Either way you're making a capital gain and the government wants its share.


Title: Re: RMT set to bring taxes to online gaming
Post by: Nebu on December 06, 2006, 12:03:26 PM
Via TN:

The Onion's view (http://www.theonion.com/content/node/56051).

The WINNAR!

Quote
"These taxes will really bolster America's virtual health-care system."


Title: Re: RMT set to bring taxes to online gaming
Post by: Dren on December 11, 2006, 12:32:03 PM
The only companies that would be affected are those that actively particpate in RMT.  They handle the transactions.  They have all the records of turning virtual items to real cash.  That is the only place that could be taxed effectively.

To me, this is good news.  This means MMO's will not be jumping on this RMT bandwagon very quickly at all.  To those predicting the companies will get in on this themselves are wrong, in my opinion.  The amount of redtape the government could put them through when this all comes down would bring them to their knees.

All these tax laws will do is make it harder for those doing RMT to do it.  There will always be Ebay and the like, but this is no different from selling that old truck for a profit from what you paid for it.  You're suppose to report that income right now too.


Title: Re: RMT set to bring taxes to online gaming
Post by: geldonyetich on December 11, 2006, 01:13:55 PM
I wonder if it's fair to say that companies are "jumping on this RMT bandwagon".  It seems to me that, in the majority of cases, they're being kidnapped and abducted onto this bandwagon.


Title: Re: RMT set to bring taxes to online gaming
Post by: Venkman on December 11, 2006, 01:34:39 PM
There's RMTing and then there's microtransactions. The above taxation discussion is only for the former. The latter is a legit business model because the company controls the transaction, and tracks specific revenue in and out. RMTing is player to player, and as such, different.


Title: Re: RMT set to bring taxes to online gaming
Post by: tazelbain on December 11, 2006, 01:55:51 PM
There's RMTing and then there's microtransactions. The above taxation discussion is only for the former. The latter is a legit business model because the company controls the transaction, and tracks specific revenue in and out. RMTing is player to player, and as such, different.
You say that with such authority, but these terms are hardly set.
I'd say microtranscation are sub-set of first-party RMT like Pirates  and that distinct from online auctions for third-party RMT like ebay.
RMT being the umbrella category that includes anytime real money interacts with the virtual game beyond excluding a subscription fee.


Title: Re: RMT set to bring taxes to online gaming
Post by: geldonyetich on December 11, 2006, 02:08:23 PM
Personally I prefer to keep them isolated like DQ does.  There's a big difference based on the party doing the selling.  When a company does "microtransactions", they're completely aware that what they're producing to sell to the players will impact the game economy and they make a living based off the health of the game economy.  With players trading to players in "RMT", there's much less concern for the future of the game.

Despite company being able to wave a magic wand to make gear appear while RMT players have to exploit the hell out of the game to get a surplus of gear, the company is actually the one facing greater restrictions because they won't willingly destroy their in-game economy by creating a surplus.

You can go to all the "microtransaction" models of existing games out there and you'll notice that very rarely are actual game-changing items handed out.  The vast majority of microtransactionable items are cosmetic or grant temporary benefits at best.


Title: Re: RMT set to bring taxes to online gaming
Post by: tazelbain on December 11, 2006, 02:26:46 PM
Ok than what are the EQ2 servers? It's not micro, and its not RMT under DQ's definition.

Do PE and SL fall under microtransactions, if so, thats the kind I hate.  Maybe they need to be in a separate category, like Real Word Currency.


Title: Re: RMT set to bring taxes to online gaming
Post by: geldonyetich on December 11, 2006, 04:44:42 PM
EQ2's exchange servers are RMT, but also pretty unique.  The vast majority of RMT going on with MMORPGs (including that on the non-exchange servers in EQ2) are not sanctioned by the company that owns the game.

I agree that Project Entropia and Second Life aren't exactly RMT or microtransactions.  Project Entropia attempts to promote the idea that land and items in the game have a real monetary value - I think they'll even pay you real money if you cash out their game currency.  Second Life items don't have monetary value, it's right in their TOS agreement, but they say players "own" their own creations they create using the Second Life toolkit enough to turn around and sell them to other players.  CmdrSlack could tell you a lot more about Second Life than I could.


Title: Re: RMT set to bring taxes to online gaming
Post by: Numtini on December 12, 2006, 06:47:45 AM
As far as I know, Second Life doesn't sell currency, the currency is just exchanged between users as RMT. They do, however, sell land which is I guess a very high priced version of microtransaction. There's also a monthly fee for the land, which is somewhere between a subscription fee and a microtransaction.

While the currency has no official value and can be removed at any time, buying and selling currency for real world dollars is what SL's economy is all about. It's about as RMT as you can get. You get some tiny stipend, which is new currency entering the system, but it's really really tiny. So you want a ferret outfit. It's L$5000 so you go to Lindex their buy/sell Linden$ system and buy L$5000 from another player for about 20 bucks US. Then you buy your ferret outfit and the person selling it sells the L$5000 on the Lindex probably to you.

Effectively, the big players are the ones are just selling their stuff for Lindens and then anonymously selling the Lindens to their customers. You could do away with the Lindens entirely. I could easily see the IRS requiring Linden Labs to issue 1099s or something like that to people using the Lindex service. There's a lot of money trading hands there. OTOH if the government ever does take an interest, I suspect it will be in the form of a few dozen FBI agents trolling for pedos.


Title: Re: RMT set to bring taxes to online gaming
Post by: CmdrSlack on December 12, 2006, 07:37:48 AM
Quote
Second Life items don't have monetary value, it's right in their TOS agreement, but they say players "own" their own creations they create using the Second Life toolkit enough to turn around and sell them to other players.

Partially correct.  Linden Labs made a bunch of noise in the media when they went to the 'you own your creations' model.  Content creators retain their copyright, etc.  In most games, if you create any content in-world, even if create means "I killed the mob that dropped this," you give up any copyright or other rights you may have as part of the EULA.  In SL, you don't give up those rights. 

This makes a great selling point for them when pitching to the Larry Lessig adherents.  "You've always had this right, but everyone else makes you give it up.  We don't." 

What has no value is, well, everything.  You disclaim that any of your virtual stuff has any intrinsic value.  Linden Lab thinks this will protect it from hassle if their servers imploded and lost everyone's data.  Who knows, it might.  Personally, I think that telling people, "You can make real money here!  You own all of your creations!" and then also telling them, "But yeah, none of this stuff is worth anything," is a bit shady. 

Will it get them in the end?  Who knows?  There's people shelling out either a $1200 or$1600 setup fee and then about $260/mo have a private island.  I believe these islands are generally hosted on their own servers as well.  Most in-game land is bought with the Linden dollar, but there are land release auctions (when new land goes live) and the island sales that are done in cash.  Your monthly fee for the land use is also cash -- they call it a "tier" fee.  Basically, you can own up to a certain amount of sq. meters of land before you "tier up" and pay the next bracket.  A nice-sized plot of land will cost a user a grand total fee of about $22/mo.  This is about the same as the station pass...it's not too bad, really.

IMO, Linden Lab can't really pitch the place as a way to make tons of dough without also admitting that something somewhere has value.  I think there's interesting issues of ownership as well when it comes to the user-created content -- what REALLY happens if they lose their data?  Their corporate counsel told me in March that they expected to avoid all liability for all of the issues that they may have because they're a "service provider" and thus protected under the DMCA and a few other laws that give exemptions for or special protection to ISPs and other service providers.

Were I filing a lawsuit against them for a client, that'd be the first thing that I would attack.  Linden Lab is not Comcast.  I'd have to really do some research, but I highly doubt that services like Second Life were expected to fall under the "service provider" category.  I don't think they really believe that they're in the same category either.  Linden Lab actively regulates the content on the grid.  Hell, they created their Teen Grid just so that they wouldn't have to worry as much about people being pedos, kids seeing adult content, etc.  Were they truly a massive service provider, they'd not have the resources to do this -- that's why service providers get exemptions.

Meh.  I'm rambling.  I'm done.


Title: Re: RMT set to bring taxes to online gaming
Post by: Numtini on December 12, 2006, 07:45:41 AM
On the copyright thing, the big issue is that you can upload actual graphics and sounds into the game. In SL, what you really own is the copyright for the material you upload.

For example, you can slap a logo onto a tee shirt and sell it in game in both THERE.com and SL

In There.com, once you upload that shirt, it becomes the property of there.com Not just the virtual object or the pixels or the code or whatever. The graphic you created on the shirt becomes the property of there.com If you quit, or if they just felt like it, they could stop you selling the shirt and sell it themselves in game. They could also slap the graphics on a real shirt and sell it at the Gap. And if you tried to do that, they could sue you. You've signed over the copyright to them. They own it.

In SL, you own the graphic on the shirt even after it's loaded. So you would retain real world rights to the image. You have exclusive rights to it in the game.

it's not about the "virtual object" it's about the creative content that is expressed in the virtual object.


Title: Re: RMT set to bring taxes to online gaming
Post by: CmdrSlack on December 12, 2006, 07:52:46 AM
Thought I said that.  But you said it more succinctly.   :-D

Not all of the user content is uploaded, however.  If you code something in their scripting language, theoretically you own the copyright to that too.  Obviously, the guy who sold his game for web and cell phone development didn't sell the LSL version, but sold the copyrightable elements of the game system, etc.  Heck, maybe he did sell a copy of the LSL source too, who knows. 

At any rate, there's a certain point where I think LL is in seriously deep water, and I think they're nearing it.  Whether that ends up being bad for them is THE FUTURE and stuff.


Title: Re: RMT set to bring taxes to online gaming
Post by: Numtini on December 12, 2006, 09:36:59 AM
Well, I'm not sure they'd be having such a problem if they weren't so interested in dragging attention to themselves. That's the part I can't figure out. The real core audience are the pervs. You don't need to get into business publications to get the pervs. And smut is an industry best served by staying out of the public eye. I just don't see a business case for the publicity stuff unless they're insane enough to buy their own hype.


Title: Re: RMT set to bring taxes to online gaming
Post by: Dren on December 12, 2006, 09:52:28 AM
I assume they are trying to build value into their company so they can cash in.  Part of that assumption is that companies won't look too closely at what they are getting until too late.  Even if they did find out, the business model could be interesting to a bigger fish and buy them out of it just to have it and start fresh.  Do the same thing only more mainstream and get rid of your competition at the same time.


Title: Re: RMT set to bring taxes to online gaming
Post by: CmdrSlack on December 12, 2006, 10:40:33 AM
Well, I'm not sure they'd be having such a problem if they weren't so interested in dragging attention to themselves. That's the part I can't figure out. The real core audience are the pervs. You don't need to get into business publications to get the pervs. And smut is an industry best served by staying out of the public eye. I just don't see a business case for the publicity stuff unless they're insane enough to buy their own hype.

Well, the latest flavor of Kool-Aid down LL way is that they're a "platform."  That's how they're a "service provider."  Just like people use the current "platform" for porn (internet), people will use their "platform" (ZOMG METAVERSE!@!!) for the same.  The thing is that for all the porn, you still need talented content creators to create the locations and prim parts, etc.  Some of that stuff, while sad, is also quite well-done.  Some of it...well, it's just bad. 

But hey, that's also the internet, so yeah.  Maybe they're a bit right.

I'd agree with Dren's assessment that they're looking to get bought, but the thing is that I really believe that the people in charge there believe their hype.  When their corp. counsel told me an anecdote that basically likened SL to the fledgling internet, I knew that the Kool-Aid was mighty strong.


Title: Re: RMT set to bring taxes to online gaming
Post by: Venkman on December 13, 2006, 06:42:02 AM
Quote from: tazelbain
You say that with such authority, but these terms are hardly set.
I'd say microtranscation are sub-set of first-party RMT like Pirates and that distinct from online auctions for third-party RMT like ebay.
RMT being the umbrella category that includes anytime real money interacts with the virtual game beyond excluding a subscription fee.
Micro-transactions are used to fund the development and continuation of the game, usually at the exclusion of subscription fees (though with the inclusion of ingame advertising). As a business, it is a legitimate source of income, various line items reporting up into a matrix of taxable statements. This money is already taxed as part of doing business.

RMTing is just between players, using real world money to conduct an ingame transaction. Unless the company takes a cut (like SOE's trade-enabled servers), the company doesn't see any money. It's more akin to reselling goods. All money is between the two parties making the transfer, and as such, it's only their money that's taxable.


Title: Re: RMT set to bring taxes to online gaming
Post by: Venkman on June 25, 2007, 08:49:55 AM
Update from our buddy Zonk (http://politics.slashdot.org/article.pl?sid=07/06/23/2055244&from=rss), about Congress to Revisit Virtual Goods Taxation  (http://news.com.com/8301-10784_3-9733848-7.html)

Key quote (which is about 2/3 of the total article anyway)

Quote
Dan Miller, a senior economist with the Congress' Joint Economic Committee, told CNET News.com on Friday that he expects the committee to issue its report during the upcoming Congressional recess next month.

What that report will say is unknown, as the committee has kept entirely quiet about its thoughts.

However, it's clear that something will happen.

"Given growth rates of 10 to 15 percent a month, the question is when, not if, Congress and IRS start paying attention to these issues," Miller, who is a fan of virtual worlds and economies, told CNET News.com in December. "So it is incumbent on us to set the terms and the debate so we have a shaped tax policy toward virtual worlds and virtual economies in a favorable way."


Title: Re: RMT set to bring taxes to online gaming
Post by: Merusk on June 25, 2007, 09:51:07 AM
It's going to go badly for games. I guarantee it! And everything I've ever guaranteed has fallen to ashes, so here's hoping the curse holds true!


Title: Re: RMT set to bring taxes to online gaming
Post by: CharlieMopps on June 25, 2007, 12:15:55 PM
Well, there's several issues here...
1. If the IRS doesnt tax them, they could become a tax shelter. You could simply buy up realestate in UO or Gold in EQ2 untill you had $100,000 worth and then claim it as a loss. The IRS wouldnt be able to touch it. Then you could resell it 10 years later... Tax free.
2. Currently Virtual markets are extreamly unstable... thats why people dont do #1 yet... But that could change
3. A disreputable software company could easilly exploit their users... What if the Gold-4-sale websites were actually supplied by SOE? What if its SOE selling us our gold and not Chinese bot farmers like we always thought? That sort of thing holds legal and moral implications I cant even comprehend.


Title: Re: RMT set to bring taxes to online gaming
Post by: Venkman on June 25, 2007, 12:34:41 PM
With taxation comes heftier accountability requirements on the part of game developers. As mentioned a the recent Virtual Games Summit, it'd require game companies to start acting more like banks. That's fine for Korea, where everything is so integrated. But it'll be tougher here because game companies usually just write off the secondary market as aberrant behavior. Sorta hard to keep doing that in the face of it benig an estimated 2 billion dollar industry, but there it is.


Title: Re: RMT set to bring taxes to online gaming
Post by: Yegolev on June 25, 2007, 12:52:59 PM
Seems like everyone takes the gaming industry more seriously than the people that work in it.


Title: Re: RMT set to bring taxes to online gaming
Post by: Numtini on June 26, 2007, 06:42:01 AM
I still don't take any of this seriously and I suspect the real people pushing for the taxation thing are the "virtual property" activists aka people who want to be allowed to cheat as a right.

One of the things to think about is we always here that it would be too much trouble to track everyone cheating and ban them. Well, if game companies were required to monitor in game transactions to the level required for taxation, that would require enough infrastructure to make finding and banning RMT quite easy anyway. Probably it would just put most games out of business because of the expense. Or they'd just eliminated trading.


Title: Re: RMT set to bring taxes to online gaming
Post by: tkinnun0 on June 26, 2007, 10:38:07 AM
Or they'd eliminate time/money requirements to obtaining virtual goods. Oh well, one can dream.


Title: Re: RMT set to bring taxes to online gaming
Post by: Sogrinaugh on July 02, 2007, 05:03:14 PM
http://news.com.com/IRS+taxation+of+online+game+virtual+assets+inevitable/2100-1043_3-6140298.html?tag=st.num
http://www.gamespot.com/news/6162654.html
http://www.gucomics.com/archives/view.php?cdate=20061205

Though I'm an Internet Eternity Late on this, I thought I'd bring up this topic.  Basically, some experts are predicting that taxation of owning virtual items is an inevitability.  The implications are interesting, to say the least.  Personally, I'd just like to string up RMT traders by their gonads for requiring me to hire a tax consultant because I play MMORPGs.  Then again, I've been wanting to string up RMT traders by various painful parts of their anatomy for years just for dragging real life commercialism into my fantasy world.
Sympathize 100%.

Will taxation of virtual goods be doable even when players don't own them?  I.E. if all RMT transactions are against the terms of use (illegal? breach of contract?), and if the company is aggressively trying to eliminate RMT traders for such, will transactions between traders in-game and/or the AH still be taxable?  What about killing mobs and getting phat lewt?  Every time a rare/epic item drops and someone wins it, they have to claim a % of its worth on their income tax?  A % of all gold farmed?

If the company owns your characters and all items and basically all "stuff", then what the fuck are we doing?  Leasing?  Why do we have to pay taxes on other people shit?  Or will the goverment remove possession from the company and grant it to the people so that they can tax this shit?  If said company won't take this shit, will i have to move to Korea to play this shit?

Not that i expect you to answer this shit... :(


Title: Re: RMT set to bring taxes to online gaming
Post by: CmdrSlack on July 02, 2007, 06:41:36 PM
If you cash out via RMT, you'd get taxed.  Any other taxes people are talking about are chicken little scenarios.


Title: Re: RMT set to bring taxes to online gaming
Post by: funcro on July 02, 2007, 07:40:38 PM
If you cash out via RMT, you'd get taxed.  Any other taxes people are talking about are chicken little scenarios.

What about alternative minimum tax?  I know some people who got bitch-slapped by AMT back in the late 90s specifically because they didn't cash out.  They exercised stock options but held the stock (I didn't say they were smart people), and then woke up one morning to find the stock worthless, but the IRS still wanting tax from profit they never realized by buying the stock at a discount.

Could something like that happen with virtual goods?  I honestly don't understand enough about AMT to say.


Title: Re: RMT set to bring taxes to online gaming
Post by: cmlancas on July 02, 2007, 07:59:26 PM
Is anyone looking past the obvious taxation here?

If the government is taxing the 1,000,000 platinum changing hands in Game_01, what happens when Cheating_Gamer_06 dupes platinum? Does that make him/her a felon since he/she is in a roundabout way defrauding the government? If things like this pass, I can easily forsee laws that could possibly make it truly illegal to "cheat" in an MMORPG where goods of value change hands. Hell, that guy who was suing Linden Labs over breach of contract could easily have been arrested under laws that follow this logic.

Perhaps CmdrSlack or someone with a bit more law knowledge than I might explain where I think I am going with this thought a little better.


Title: Re: RMT set to bring taxes to online gaming
Post by: Strazos on July 02, 2007, 08:07:30 PM
Also, roundabout counterfeiting.  :evil:


Title: Re: RMT set to bring taxes to online gaming
Post by: cmlancas on July 02, 2007, 08:09:22 PM
Also, roundabout counterfeiting.  :evil:

The list goes on. I'm really interested in what people have to say about this.


Title: Re: RMT set to bring taxes to online gaming
Post by: Strazos on July 02, 2007, 08:12:13 PM
I support the general idea of taxation, as I have no interaction with the RMT market.


Title: Re: RMT set to bring taxes to online gaming
Post by: Johny Cee on July 02, 2007, 09:40:02 PM
Taxation of virtual goods isn't going to happen, because virtual goods are already adequately covered under the present tax code.

1. As Slack said,  any time you cash out it's a taxable transaction.  Sell 500 gold for $50 bucks,  you have either a Short Term or Long Term Capital Gain equal to the dollar value you sold the gold for, since your virtual good has no basis.

2.  A customer buys Sword of Uberness from SOE for $50,  this is Ordinary Income to Sony of $50.

3.  First problem issue:  A company starts a service where you can use WoW gold to purchase physical items,  like books or music.  Likely,  this will fall under the rules set up for the various organizations that used coupons/certificates/other arbitrary items as a currency in an attempt to get around using cash and therefore not be a taxable transaction.

In those cases,  the company is required to give a 1099 or other form listing the approximate dollar value of the purchased item and pick the item up as income. (Little fuzzy on this,  since it's been awhile since I looked at this issue.  Fairly certain thats the correct treatment).

As an example:  If you win a car in a raffle or on a gameshow,  you're given a 1099 for the value of the property.

_______________________________________________

Other things mentioned:

Tax Shelter --  You can't use UO gold as a tax shelter,  because: 
1.  You have to sell or write off as worthless the investment (have an economic transaction), giving up all future rights to the purchased property

2.  You are limited to taking a deduction to the amount of basis you have in an investment/shelter.  That is,  you can only take a tax deduction up to the amount you invested in the property.

3.  There are specific rules as to what is considered an investment.  In general, collectibles (which most MMOs would probably fall under) are extremely difficult to take a loss for.  The other option is it's treated like gambling losses,  in which case at best you get an itemized miscellaneous deduction up to the amount of winnings.

4.  The transactions have to have an economic purpose,  and not solely be for the purpose of avoiding tax liability.  The IRS usually just issues an "estimate" of tax liability (read:  sends a nasty-gram making up a huge tax liability,  and sits back and waits for the taxpayer to contact them).

______________________________________________


Just about the only way I see a tax deduction arising is something like Magic,  where it is a Pro Players profession (file a Schedule C, recognize income on the Sched C, and it's their primary occupation).  If their card collection is stolen,  they could probably get a deduction for it.  Unless they've been writing off money spent on cards all along as a Sched C deduction. 

(Don't laugh....  Magic Pro players at an elite level can make a fair amount of money.  The top couple of all time Pro Tour winners are over the $500,000 mark.)




Title: Re: RMT set to bring taxes to online gaming
Post by: CmdrSlack on July 02, 2007, 09:49:06 PM
Seems to me that virtual currency in games like WoW or EQ2 or LoTRO is not the same thing as a stock option. They seem similar -- neither is worth shit unless you cash in. However, with the exception of SL and Project Entropia (and I guess to some extent EQ2), the virtual currency and goods aren't intended to be cashed in. That's why we have this "illegal" (the use of illegal in that context makes me throw up a bit in my mouth, but whatevs) third-party RMT industry.

I'm no tax lawyer, so maybe I'm wrong on that, but they seem functionally different to me.

I guess we'll find out in a month or two, but I highly doubt that there'll be any recommendations from Capitol Hill that involve giving real-world value to the virtual stuff found in various games. It just seems like the least possible option. All talk of duping = big time legal trouble sounds rather silly because of this. IMO, taxing the people who cash out (as well as the income of the RMT corps) would go a long way towards solving the problem. Hell, make it all subject to state sales taxes too. There's no need to make all of the virtual stuff the same as real stuff unless you really want to monetize these spaces in a big way. Then duping may be a big deal, but do you really want the government that involved in games?

Besides, I can think of a few existing legal theories that would allow companies to sue dupers if they thought they could get blood from a turnip.

ETA -- Also, the above post is chock full of goodness.


Title: Re: RMT set to bring taxes to online gaming
Post by: Johny Cee on July 02, 2007, 09:58:35 PM
Seems to me that virtual currency in games like WoW or EQ2 or LoTRO is not the same thing as a stock option. They seem similar -- neither is worth shit unless you cash in. However, with the exception of SL and Project Entropia (and I guess to some extent EQ2), the virtual currency and goods aren't intended to be cashed in. That's why we have this "illegal" (the use of illegal in that context makes me throw up a bit in my mouth, but whatevs) third-party RMT industry.

I'm no tax lawyer, so maybe I'm wrong on that, but they seem functionally different to me.

I guess we'll find out in a month or two, but I highly doubt that there'll be any recommendations from Capitol Hill that involve giving real-world value to the virtual stuff found in various games. It just seems like the least possible option. All talk of duping = big time legal trouble sounds rather silly because of this. IMO, taxing the people who cash out (as well as the income of the RMT corps) would go a long way towards solving the problem. Hell, make it all subject to state sales taxes too. There's no need to make all of the virtual stuff the same as real stuff unless you really want to monetize these spaces in a big way. Then duping may be a big deal, but do you really want the government that involved in games?

Besides, I can think of a few existing legal theories that would allow companies to sue dupers if they thought they could get blood from a turnip.

Individuals are on the cash basis, so when they cash out they get taxed.  And these transactions ARE already subject to state sales tax,  just like if you buy items over ebay/internet store/catalog you're supposed to report the purchases and pay in your sales tax.  Right now, most states aren't pushing the issue.

In New York the last few years,  they've added a line for sales tax on purchases to the income tax form.  If you buy items subject to Sales & Use tax,  and aren't taxed,  you should be reporting and paying in your sales tax on the tax return.


Title: Re: RMT set to bring taxes to online gaming
Post by: Trippy on July 02, 2007, 10:59:14 PM
South Korea is now taxing RMTs:

http://www.next-gen.biz/index.php?option=com_content&task=view&id=6223&Itemid=2


Title: Re: RMT set to bring taxes to online gaming
Post by: Numtini on July 03, 2007, 04:47:48 AM
I think this idea that you will be taxed by the IRS on gold pieces earned is a Frankenstein monster of gamers looking to add publicity to gaming, gamers who think if its taxable the game companies can't ban it, and internet libertarians who want another thing to bash the IRS over. Oh and a healthy dose of the same "journalists" who write stories about Second Life.

About the only thing I can see an issue over is clarification about whether or not this is pure income or a capital gain. But if you cash out, you have received income, and its taxable. If you don't cash out, there's no income. That's how other hobbies with far more real cash value work, why would this be any different?


Title: Re: RMT set to bring taxes to online gaming
Post by: Johny Cee on July 03, 2007, 05:34:47 AM
South Korea is now taxing RMTs:

http://www.next-gen.biz/index.php?option=com_content&task=view&id=6223&Itemid=2


I read the first two paragraphs.

VAT is the equivalent of Sales & Use Tax in the United States, NOT Income Tax.  The IRS has nothing to do with Sales Tax, as this is a state tax issue (at least until the Unified sales tax stuff gets hammered out).

RMT transactions should be (to my knowledge) subject to Sales Tax.  The difference from this article:

Korea is now requiring the "larger" RMT companies to automatically withhold/charge VAT on purchases.  Think about you local store...  they withhold sales tax,  and then are required to remit the tax to appropriate state gov.

In the US,  this has no relevance.  We refuse to force internet retailers and catalog companies to withhold sales tax.  Why start with RMTs,  which are a small fraction of online retailers total volume?

This leads back to what I was stating earlier:  You are already subject to Sales & Use Tax on Internet purchases.  You should be remitting your money (with the appropriate form) to the state government.  Yes,  I realize not alot of people do this now,  but it is growing.


Title: Re: RMT set to bring taxes to online gaming
Post by: Trippy on July 03, 2007, 07:10:37 AM
Except that's it's being handled by the NTS which the article equats to our IRS and it's not a pure sales tax cause only income above a certain amount is taxed.


Title: Re: RMT set to bring taxes to online gaming
Post by: sinij on July 03, 2007, 07:27:24 AM
Can I take a deduction for losing income in an MMORPG then?

I should be able to write-off most of my income to expenses incurred due to wiping in 5 mans.


Title: Re: RMT set to bring taxes to online gaming
Post by: shiznitz on July 03, 2007, 10:16:47 AM
If you can be taxed on a sale of your character, then you can expense your monthly fee against that. And the software. And your "office."  The IRS cannot just up and say "you sold something and you owe tax." When I sell my car to someone else, I don't get taxed (by the IRS, anyway. Sales tax can apply.) The IRS does not go after casual Ebayers, but they do expect those who use Ebay as a storefront to pay tax as a operating company. If you make a living from RMT, then the IRS is going to come after you eventually but if you sell 100 WoW gold every few months and you have a real job, then the IRS opens an unnecessary can of worms coming after those RMT "earnings" since you will have the right to claim costs against it.


Title: Re: RMT set to bring taxes to online gaming
Post by: Stephen Zepp on July 03, 2007, 10:21:19 AM
If you can be taxed on a sale of your character, then you can expense your monthly fee against that. And the software. And your "office."  The IRS cannot just up and say "you sold something and you owe tax." When I sell my car to someone else, I don't get taxed (by the IRS, anyway. Sales tax can apply.) The IRS does not go after casual Ebayers, but they do expect those who use Ebay as a storefront to pay tax as a operating company. If you make a living from RMT, then the IRS is going to come after you eventually but if you sell 100 WoW gold every few months and you have a real job, then the IRS opens an unnecessary can of worms coming after those RMT "earnings" since you will have the right to claim costs against it.

I'm not an expert in any way, but as far as I am aware you can't directly deduct expenses for a hobby against earnings you make from that hobby. Similar to the "professional vs hobby gambling" issues, but they do in fact have at least some ability to take without allowing you to deduct.

You finance guys jump in any time now!


Title: Re: RMT set to bring taxes to online gaming
Post by: Numtini on July 03, 2007, 10:54:20 AM
Quote
The IRS does not go after casual Ebayers

Just because they don't come after you doesn't mean that it's not income subject to tax. It just means that you're getting away with cheating.

Also, the reason you don't owe tax when you sell your car is because almost universally you are selling it for less than your purchased it for. There's an exemption for a personal use capital item, so you can't claim the loss. But if you, for example, bought a spiffy new Mustang in 1965 for $3400 and you sold it today for oh $25,000 you would owe on a capital gain.


Title: Re: RMT set to bring taxes to online gaming
Post by: Johny Cee on July 03, 2007, 08:34:32 PM
Quote
The IRS does not go after casual Ebayers

Just because they don't come after you doesn't mean that it's not income subject to tax. It just means that you're getting away with cheating.

Also, the reason you don't owe tax when you sell your car is because almost universally you are selling it for less than your purchased it for. There's an exemption for a personal use capital item, so you can't claim the loss. But if you, for example, bought a spiffy new Mustang in 1965 for $3400 and you sold it today for oh $25,000 you would owe on a capital gain.

Numtini is correct, to my knowledge.


Title: Re: RMT set to bring taxes to online gaming
Post by: Johny Cee on July 03, 2007, 08:45:55 PM
Except that's it's being handled by the NTS which the article equats to our IRS

Most Sales Tax/VAT agencies in most countries are organized nationally (or internationally, with the EU?  unsure).  The US is strange because Sales Tax is handled at the state level.

The author equates the NTS VAT department with the IRS,  but it really should be compared to the various state Sales Tax authorities,  which are usually subsections of the Departments of Revenue or Finance,  which handle state income taxes as well.

Quote
and it's not a pure sales tax cause only income above a certain amount is taxed.

No.  Unless Korea is radically different,  all transactions are taxable.  It's just that,  over certain amounts of gross receipts/sales,  the seller is required to charge and withhold the VAT/Sales Tax on the transaction and pay it in to the appropriate authority. 

Example:  You have a yard sale, or you regularly sell a goods as a hobby business.  If your sales are under a certain limitation,  the burden of paying the sales tax is on the customer.  If you go over the limitations,  or are carrying out a "profession",  then you should be required to charge and withhold sales tax from the customer at the time of purchase.  THE SALES TAX IS DUE WHETHER YOU HAVE TO WITHHOLD IT OR NOT.  It's just that most people don't bother to pay,  and most taxing agencies don't bother to chase.

This is further complicated in the US since you aren't required to withhold sales tax on transactions when you don't have nexus (a business location) within a state.  That's why LL Bean, for instance,  doesn't charge sales tax on catalog sales except to residents of a state where they have a location.


Title: Re: RMT set to bring taxes to online gaming
Post by: Tebonas on July 04, 2007, 03:43:41 AM
In the EU its nationally as well. Not important, just so that you can be sure!  :-)


Title: Re: RMT set to bring taxes to online gaming
Post by: Merusk on July 04, 2007, 06:27:27 AM
In the EU its nationally as well. Not important, just so that you can be sure!  :-)

That would be the 'state' level equivalent in the US the when talking about the EU. Which makes sense when looking at the history of the US and the EU.


Title: Re: RMT set to bring taxes to online gaming
Post by: shiznitz on July 04, 2007, 04:03:17 PM
Quote
The IRS does not go after casual Ebayers

Just because they don't come after you doesn't mean that it's not income subject to tax. It just means that you're getting away with cheating.

Also, the reason you don't owe tax when you sell your car is because almost universally you are selling it for less than your purchased it for. There's an exemption for a personal use capital item, so you can't claim the loss. But if you, for example, bought a spiffy new Mustang in 1965 for $3400 and you sold it today for oh $25,000 you would owe on a capital gain.

Numtini is correct, to my knowledge.

He is correct, but there is a cost to earning in game gold, i.e. the subscription fee. As far as the hobby vs profession test, it's all about whether you are doing it to make money or not. That is the test the IRS applies. That is not something that comes from a form, but from an interview with an IRS investigator. If your "hobby" makes you money every year, then you are probably going to get dinged.

Num's comment about just getting away with it is accurate, yes, but the IRS cannot go after everyone making a buck at the margin so hobbyists can make some money on the side without worrying about a crackdown. You ret their attention when 1) you deduct expenses or 2) it is your only source of income.


Title: Re: RMT set to bring taxes to online gaming
Post by: Endie on July 05, 2007, 02:23:16 AM
Quote
The IRS does not go after casual Ebayers

Just because they don't come after you doesn't mean that it's not income subject to tax. It just means that you're getting away with cheating.

Also, the reason you don't owe tax when you sell your car is because almost universally you are selling it for less than your purchased it for. There's an exemption for a personal use capital item, so you can't claim the loss. But if you, for example, bought a spiffy new Mustang in 1965 for $3400 and you sold it today for oh $25,000 you would owe on a capital gain.

Do you not have a capital gains allowance?  If I bought a car for £3400 and sold it 32 years later for £25,000 in the UK I would owe nothing.  There is complexity with some rebasing of prices and the change in overnighting of prices in about 1989 or so, but basically my annual capital gains tax allowances would cover me for that gain over that period of time.*

*The part of my law degree I hated most and was worst at was taxation, and this is not even close to being good legal or accounting advice


Title: Re: RMT set to bring taxes to online gaming
Post by: Johny Cee on July 05, 2007, 06:19:29 AM
Quote
The IRS does not go after casual Ebayers

Just because they don't come after you doesn't mean that it's not income subject to tax. It just means that you're getting away with cheating.

Also, the reason you don't owe tax when you sell your car is because almost universally you are selling it for less than your purchased it for. There's an exemption for a personal use capital item, so you can't claim the loss. But if you, for example, bought a spiffy new Mustang in 1965 for $3400 and you sold it today for oh $25,000 you would owe on a capital gain.

Do you not have a capital gains allowance?  If I bought a car for £3400 and sold it 32 years later for £25,000 in the UK I would owe nothing.  There is complexity with some rebasing of prices and the change in overnighting of prices in about 1989 or so, but basically my annual capital gains tax allowances would cover me for that gain over that period of time.*

*The part of my law degree I hated most and was worst at was taxation, and this is not even close to being good legal or accounting advice

Nope.  Just basis at historical cost.

There is an exclusion on capital gain from the sale of a personal residence.


Title: Re: RMT set to bring taxes to online gaming
Post by: CmdrSlack on July 05, 2007, 04:45:06 PM

Nope.  Just basis at historical cost.

There is an exclusion on capital gain from the sale of a personal residence.

Heh, "But my castle in UO is my personal residence!"

That'd rule.  Too bad nobody plays UO anymore.


Title: Re: RMT set to bring taxes to online gaming
Post by: WindupAtheist on July 06, 2007, 06:24:56 AM
Generic "I BEG TO DIFFAR!" interjection!


Title: Re: RMT set to bring taxes to online gaming
Post by: Venkman on July 06, 2007, 06:32:01 AM
I can't see them being able to tax virtual goods without a whole bunch regulations on the handling of the goods by the companies, none of which exist on an industry-wide scale.


Title: Re: RMT set to bring taxes to online gaming
Post by: CmdrSlack on July 06, 2007, 07:34:40 AM
Generic "I BEG TO DIFFAR!" interjection!

Generic "LOL U PLAY UO" rejoinder!


Title: Re: RMT set to bring taxes to online gaming
Post by: CmdrSlack on July 06, 2007, 07:35:15 AM
I can't see them being able to tax virtual goods without a whole bunch regulations on the handling of the goods by the companies, none of which exist on an industry-wide scale.

Heh, they would if some new laws were made. Of course, I doubt that'll happen.


Title: Re: RMT set to bring taxes to online gaming
Post by: Venkman on July 08, 2007, 09:27:28 AM
Sorta chicken and egg though. One example:

Guvmint passes some law either at the local or national level, requiring some industry-wide common tracking and reporting system for companies that allow the sale of virtual goods, as the first step towards taxing what people can then report as legitimate income and expense. Think something like a lite version of Sarbanes-Oxley applied to MMORPGs.

The first thing most companies will wonder is how to get around it. Compliancy is a hidden unmeasurable expense at first, something to be very afraid of :)

But if you're based on microtransactions, you've probably already internalized enough of the checks and balances to both either people don't get overly screwed and leave, or that they well understand that nothing about the worth of their goods is certain, well understood enough to survive legal challenge.


Title: Re: RMT set to bring taxes to online gaming
Post by: Johny Cee on July 09, 2007, 03:07:02 PM
1. Government doesn't need to pass a law concerning RMT where you are paying real currency for virtual items....   This is already covered by existing income tax law. 

2. Sarbannes-Oxley (which is going to be repealed or gutted soon,  because it was a ridiculous overreaction) only applies to accounting and auditing of publicly traded companies,  not to tax regulation.

Accounting and auditing regulations are the province of the SEC,  which delegates the authority and power to the FASB and other Accounting industry organizations to promulcate regulation.

3. The real outstanding issue is non-currency transactions....  virtual item for virtual item,  where neither have an easily discernable real or cost value.  It is very unlikely that such transactions would EVER be income taxable,  just from problems of valuation.

4. A further issue is sales tax treatment....  How should currency RMTs be treated in regards to Sales/Use Tax.  That opens up a whole nother can of worms,  both because of traditional internet exemptions from sales tax collections as well as the administrative overhead of trying to correctly calculate sales tax on transactions taking place in every jurisdiction of the US.

As an example,  I've done a couple bid proposals for firms for Sales Tax preparation and the related accounting.  The one that sticks in my mind:  I turned in a proposal for a smallish ($2 - $5 million in revenue) business with sales in 42 states.  Quoted them $20,000 for one time research and setup costs,  and $6-8000 a quarter for sales tax preparation.  Responses to notices and tax issues to be billed at hourly rates averaging $120/hour.  The response can best be summed up as:  "are you fucking kidding?"  and we had worked substantial discounts into the proposal.



Title: Re: RMT set to bring taxes to online gaming
Post by: Venkman on July 09, 2007, 05:10:45 PM
I agree with you insofar as I cede to your much greater knowledge in this area :) However, just to clarify, I didn't mean SOX as applied to tax-law, just that something like a SOX would need to be in place in order to support the valuation, calculation, and collection of taxable revenue on both sides. In my opinion, of course and as usual.