RMT set to bring taxes to online gaming

[geldonyetich]

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.

[Strazos]

Good job assholes. Way to go with ruining an entire genre of gaming if this goes through.

[Endie]

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.

[Simond]

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.

[Endie]

Via TN:

The Onion's view.

[Ironwood]

 :-D

[CmdrSlack]

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.

[Venkman]

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.

[SnakeCharmer]

Anshe Chung has some splainin' to do

[Endie]

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.

[Righ]

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?

[tazelbain]

I don't see how its any different than gambling.

[Endie]

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).

[Lantyssa]

Can I take a deduction for losing income in an MMORPG then?

[geldonyetich]

Good question.  I think my subscription fees should count as a business expense.

[WayAbvPar]

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.

[Morat20]

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?

[Trouble]

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.

[Murgos]

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.

[Trouble]

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.

[Nebu]

Via TN:

The Onion's view.

The WINNAR!

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

[Dren]

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.

[geldonyetich]

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.

[Venkman]

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.

[tazelbain]

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.

[geldonyetich]

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.

[tazelbain]

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.

[geldonyetich]

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.

[Numtini]

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.

[CmdrSlack]

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.

[Numtini]

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.

[CmdrSlack]

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.

[Numtini]

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.

[Dren]

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.

[CmdrSlack]

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.