Nice Work Retrieving That Magic Sword… But Now You Need To Pay Uncle Sam For It

from the oh-please dept

We’ve discussed, at length, the many, many reasons why it’s a bad idea to start taking in-game crimes and putting them in real world courts — even if people are getting scammed out of things that have real value. Because the game allowed it, it’s an in-game issue and should be taken care of within the game. Otherwise where is the line? Some games allow for stealing and crime — or even encourage it. If that’s the case, then what happens when a player in one of those games takes a dispute out to court? It seems silly since the point of the game is to set up a world where those actions are acceptable. In almost every case, there should be some sort of way that the issue can be handled within the game. However, as people continue to take such disputes outside of the game, while talking up how much value there is within the game, it has apparently attracted some interest of politicians who are wondering if it makes sense to tax in-game proceeds. By taking any aspect of the game and connecting it directly to the real world, the games have only brought this possibility on themselves. Note that the politicians aren’t talking about virtual items in the game that have been converted to real dollars or other assets. That’s already taxable as income. Instead, they’re looking at actually taxing the items within the game based on the perceived value of those assets. This opens up a huge set of issues that aren’t likely to go away very easily — while also making it a lot more expensive to spend much time playing online games.

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Comments on “Nice Work Retrieving That Magic Sword… But Now You Need To Pay Uncle Sam For It”

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Anonymous Coward says:

Rediculous. Of course, thats pretty much how politicians are. Discussing the obstacles could take days to even think about all the possibilities, much less decide on solutions. how would you deal with different prices on different servers (IE high population/low population servers in World of Warcraft, prices are very different between servers). how about hackers who simply dupe gold? inflation? what conversion rate would be used? is gold from WoW equivalent to gold in Final fantasy 11?

Anonymous Coward says:

Re: Re:

what happens if a server rollback happens and i lose the gold i already paid taxes on?

who is responsible if my account is hacked? will the police in my county investigate or am i out of luck and im liable to pay taxes on the gold i earn, but nobody is liable to investigate the theft of that same gold?

will the same system that taxes me, also give me interest on money in the bank?

Michael Haney (profile) says:

Re: Re:

The main company which makes “real world” money from in-game money and items is IGE. A majority of their workforce is in China and S. Korea. IGE’s practices are in violation of both Blizzard’s and SE”s license agreements. This technically makes it an illegal activity but neither company has been able to complete stop them for long.
SE implimented many countermeasures which has limited how IGE’s Gil Farmers ability to make money. They have been limited to flooding he Auction Houses with items and driving down prices to make them sell faster. IGE is also branching off into Power Leveling for money. Twice in last three months SE has banned over2,000 users accounts for using 3rd party chatting tools.

I think it is wrong to tax in-game money. Getting in-game money for WoW and FFXI is against the EULA, but it would work wiith something like Second Life where its virtual money can be bought with real money and can be exchanged for real money.

Chronno S. Trigger says:


If they start taxing a virtual economy will they put the tax money back into the system for new servers, Internet connections, or even help out when that virtual economy crashes? If I’m poor in-game can I get welfare? Will they give tax cuts for the rich?

I have to admit, If they do start taxing in-games, it will be the fastest and most effective way to get people to stop playing. why do I start to think that Florida lawyer is behind this?

Crosbie Fitch (profile) says:


So when me and my five buddies play Monopoly I have to keep all the tax that’s collected to one side and post all the fake dollars to the IRS?

And if any of us are caught with the odd $500 bill up our sleeves, we can be sued?

I think we should invent the concept of a game-game. This is just like a normal game, except that it explicitly requires all participants to waive any legal rights they have to prosecute each other for cheating, and also asserts that all in-game-game transactions are purely for amusement and despite resemblance bear no meaningful relationship to actual financial instruments.

Mike C. says:

Selective game play...

This is exactly why I’m selective about the online games I play. I’m a 39 yr old programmer and online gamer and stick to games where the Terms Of Service expressly forbid real-world interaction. In theory, it gives me the ability to state that the real-world value is $0.00 since any attempt to achieve real-world gains results in a loss of my accounts.

Sanguine Dream says:

Big can of worms...

If you try to introduce taxes into virtual economies then you also have to introduce the penalties and benefits of them too.

Tax Breaks
Virtual Tax Evasion

Cross that that stuff over with virtual issues (like server crashes and servers with small populations) and you are looking at a big mess of problems. Frankly the goverment needs to get the tax system straight in the real world first before trying stick their hands in someone else’s Kool Aid.

Dillenger69 (user link) says:

FDIC insurance?

does this mean that in-game economies will be FDIC insured? If we get hacked, cracked, duped, or rolled back can we file a claim?

How will they justify taxing some Korean basement dweller vs an American one?

If I’m a WoW enchanter, can I write off the cost of the epic that I disenchant if I don’t get the desired outcome?

If I’m a gold farmer, can I write off equipment and repairs as a business expense?

Will they need to create a new profession of “Accountant”. I want to be a guild accountant so I can raid on the same team as Bob from Acounttemps.

Lorne says:

Re: FDIC insurance?

LOLROFL. All very good points.

What a load this all is, though. For example, if you play EQ2 on a server that is not an exchange server there is no (legal) way to make real life money, so why the hell would it be taxable. And, what would the value be for some fabled gear? Would I be taxed on the gear’s real world equivalent in plat sales? So if 10 plat is going for $20 and the item is sells in game for around 10 plat am i taxed on $20 of revenue? Revenue never realized, mind you, cause I use the item?

Kevin says:


I can see taxing someone when they convert their virtual assets to real-world cash via ebay or something, but taxing virtual items that haven’t been sold for real-life cash? Are they kidding?

So I just picked up a hot new sword in an online game, and now you want to tax me even though I haven’t converted that “virtual asset” to real life money? OK maybe that’s alright if you’ll allow me to pay in virtual money. I mean, if that sword has real life value then so does the virtual money I would be paying the IRS with, right?

Oh wait, I forgot. I play on a server that is based in Korea. So how are you going to verify that I actually own what you think that I own? More to the point, do you even have jurisdiction? Sure I’m sitting in the US when I play, but the activity that creates the items that have value take place (if indeed they can be said to take place in any physical place at all) in a server outside the country.

Or how about the reverse? What about Korean players playing on an American server?

Oh yeah, how do you actually link the account to the person who owns it to even determine what country they are in to begin with? If they play with a credit card, I could maybe see it. But what if they buy gametime codes via some other method?

Or here’s a good one. They want to charge you income tax on virtual income created in game. But what happens when a 14-year old plays 50 hours a week and then has to pay taxes on his in-game earnings? Is he playing, or is he working? Is he violating child labor laws?

What happens if you fail to pay taxes on your virtual goods that are never monetized in the real world? Do they put a lien on your virtual house? Do they take it away from you and then try to sell it? How do you determine whether the virtual goods were acquired before or after the start of some effective date for taxes? How does the government propose actually collecting and enforcing these taxes? Are they going to set up different systems to monitor each individual server of each online game? If so, they’re going to end up spending far more in enforcement than they would reap in collections.

Xiera says:

Not only is this a ridiculous idea in concept, it does not even make sense. The U.S. needs to learn that it does not own/control everything that happens on the internet.

The idea of a virtual world is that it’s VIRTUAL — you don’t have the same worries as real life. Besides, if I go out and kill people and take their money in real life, I’m sure as hell not going to report it as income, why would I do so in a game?

I don’t even know how I’m taking this seriously, to be honest. The idea is that ludicrous. This article would be a great prank/fake article or satire.

bigSteve says:

Thanks Mike

I enjoyed Mike’s contribution. It makes me laugh and I’m pretty sure it’s a complete joke on the stupidity of politicians. If you read the articles here you’ll find most of them have quite a slant to the sarcastic, idiotic side. This was a great chuckle, but everyone who keeps replying… that’s all it is, an amusing article.

JonnyBlade says:

Capital Gains Tax

I not sure how this could be nothing more than a capital gains tax. As long as you don’t ‘cash out’ the item in the real world, I find it hard to believe the Govt. would tax you, merely for the potetial value.
This is how stocks work, although I’m not sure what happens if you barter stocks for other securities.
Although, no offense, if you invest that much time to playing games that you make a living off it; that’s punishment enough.

Anonymous Coward says:

Our politicians are on crack

WTF? How could they be seiously considering this? to be able to tax virtual money, that money has to come from somewhere tangible, not just blinked into existence from blizzard’s account servers.

the only way virtual money can convert into real money is from suckers who buy virtual money/goods through players who sell it for real money (which is* currently taxable). of course, this can be circumvented by simply ammending or inventing a new law.

so what happens if you claim your virtual money on your taxes and you end up oweing the IRS for it? can you pay the IRS in vitual funds, or will you have to use your hard earned real money (considering you didn’t get it from selling virtual money) to pay off the IRS for the virtual funds you received?

I have a theory that 3/5 of our government is secretly addicted to MMORPGs. WoW.

Trouble Maker says:

two cents worth

I belong to a Virtual Country where my Government does not have Political Recognition from the US Government. And If I decide that my country will open negotiations with the US, I will ensure that I am occupied and they rebuild my country’s infrastructure. Upgrade my internet access and then after they pour billions into my country I will renege on my debt. Then when the virtual smoke begins to fade I will start testing my Virtual Nuclear Weapons to better position myself as a Virtual World Power (VWP). As a VWP I would poised to negotiate for better international trade.

Anonymous Coward says:

“What tax rates apply to a place that does not exist?”

First step: show us the law that authorizes a non-apportioned tax on labor.

Second step: Document that the 16th Amendment, on which such a non-apportioned direct tax is based, was actually ratified by the necessary number of states.

In other words, why are YOU paying taxes to the IRS in the first place? (Virtual or otherwise).

If anything the MMORPGs should be fined for not creating an internal court system to deal with issues like item theft. Beyond that though, any violence that spills out into real-life is just that, real and they (the perpetrators) deserve the same penalties given to any other RL act.

All I can say about the taxation of virtual items is that it’s re-election time and all sorts of political stupidity is made into law…just look at Bush’s recent actions.

wolff000 says:


There is no way to tax people on virtual items unless you sell the item in the real world. No way Uncle Sam can charge me for something I don’t actually own which is how things work in most mmos. You don’t really own any items the company that runs the game does. There are a few exceptions like Second Life. The only way I can see being taxed if I sell the item on ebay or other auction site.

Old Guy says:

Virtual Taxes

Egad! The gov’t on the whole is so clueless! IF someone is selling in-game items for real world money then by all means tax’em…otherwise get lost. One other thought (this is for WoW players) does this also give the gov’t the right to send in virtual troops to keep the virtual world safe from the Scourge and Dark Dwarves?

Gov Employee says:


The “politicians” who gave birth to this idea should be fired for wasting tax-payers’ money. The idea is completely rediculous.

Politicians who do anything with technology shouldn’t be old geezers and hags who have absolutely NO comprehension of what they’re talking about or the implications of their actions.

Technology has accellerated so fast that it’s really necessary now more than ever to have specialists in charge of technology-law (or working with politicians as equals).

The “Save the Internet” movement is a blatant example of how people who don’t understand the subject, shouldn’t make up laws to govern it.

JC says:

Uh, yeah, legally not workable.

See, when I play World of Warcraft I agree to a EULA and Terms of Service that state that every item in the game, even the character I play, is actually the propery of Blizzard, Inc. As such, no matter how many items I get in game or how much gold I farm, it’s never really mine (legally). It’s Blizzard’s. It exists on their servers and they can delete it or create it to their heart’s content. They can cancel my account at any time, and I get nothing back (except, perhaps, a pro-rated refund of my monthly fee). When you pay a subscription fee for these games, you’re paying for access to the servers, and when you buy the game you’re paying for a license for the software and an account key that allows you to set up the account.

You can’t tax me on things I don’t actually own.

|3331373|3|_||3 says:


If they send virtual IRS men out onto MMOs, they will have to go so far undercover to stop temselves from getting killed off by the players who don’t want to pay taxes. Then the governeemnt would have to create regiments of warriors and wizrds to protect thier IRS men, and I would work there faster than you can say WoW. If they diod this, they would find nothing b/c no-one would be stuopid enough to tell them anyting, and if they go out alone they die every few seconds once thier usernames cover is blown.

Would the Gov. have to pay the company for the accounts they use, i so when ppl find out about the identities of the players, they just imprison tham in a room with no windows or doors and leave them there to waste the rest of thier monthly access. Players would make monkeys out of governement officials so fast it just wouldn’t be funney.

What next, the US gov paying ppl to play BF2 to stop us stealing equipment form the US army, or taxing us on what we take, or sending us to Gitmo for loading up a jeep with C4 and sending it into the enemy base? How do they decide what to tax – D&D 3D? some ancient MUD? RTS online games, where your country has money – do you own the money even if you just set up the server for a few hours?

You could go on forever.

Rob says:

The value of in game objects is already taxed

Our tax system has no problem dealing with non-physical objects. Consider stock in a corporation. It has no physical existence, and it’s only worth what people are willing to pay. When you sell a stock, you are taxed on the difference between the selling price and the purchase price. If you make a profit, you report it and pay taxes on it. If you take a loss, the amount is deductible. Either way, the profit or loss isn’t realized until the actual sale.

So, if your super-rare magic sword increases drastically in value, it makes no difference to you until you sell it on ebay. If, after expenses, your sword selling/gold mining/crafting/whatever business is profitable, you can then deduct your monthly game fee, your internet connection, your computer(s), your office furniture, etc. as business expenses.

The system is already flexible enough to handle this. I don’t even think it’s relevant whether the TOS allows sales. The consequences of not having it explicitly written into the tax code are:

– No recourse if the sword is lost, stolen, or devalued. (If you bought it on ebay, you can still deduct the loss) So EO players can breathe easy.

– You don’t have to add the sword to your Schedule D.

– No recourse if the game company takes your sword and bans you for violating their TOS.

Average gamer says:

I hate congress

This settles it. Politicians know nothing about games or the people that play them. One of the reasons I play games is to escape some aspects of reality. Namely a bull headed government and that sorry excuse for a president (he should die and save me the trouble). But most of all taxes. I, like all of you, hate taxes. What I want to know is if I have, lets say, 5,000,000 in in-game currency in 3 MMO’s, do I have to pay taxes on 15,000,000 million in virtual assets? I’m part of the working class! How in Blizzard’s name am I supposed to come up with tax money for 15,000,000?!

mukesh says:

A virtual world

A virtual world is a computer-based simulated environment intended for its users to inhabit and interact via avatars. These avatars are usually depicted as textual, two-dimensional, or three-dimensional graphical representations, although other forms are possible(auditory and touch sensations for example). Some, but not all, virtual worlds allow for multiple users.The computer accesses a computer-simulated world and presents perceptual stimuli to the user, who in turn can manipulate elements of the modeled world and thus experiences telepresence to a certain degree.Such modeled worlds may appear similar to the real world or instead depict fantasy worlds. The model world may simulate rules based on the real world or some hybrid fantasy world. Example rules are gravity, topography, locomotion, real-time actions, and communication. Communication between users has ranged from text, graphical icons, visual gesture, sound, and rarely, forms using touch, voice command, and balance senses.Massively multiplayer online games commonly depict a world very similar to the real world, with real world rules and real-time actions, and communication. Communication is usually textual, with real-time voice communication using VOIP also possible.[clarification needed]Virtual worlds are not limited to games but, depending on the degree of immediacy presented, can encompass computer conferencing and text based chatrooms. Sometimes, emoticons or ‘smilies’ are available, to show feeling or facial expression. Emoticons often have a keyboard shortcut.Edward Castronova is an economist who has argued that “synthetic worlds” is a better term for these cyberspaces.

One thing that a lot of people have missed in this recent economic down turn is the fact that in-game money for all of the massive mutliplayer online role playing games has not been effected. I guess it just shows how strong and stable the computer game industry really is.

Virtual Currency – Virtual Currency

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