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Pay Taxes on Imaginary Money!

Oh man, the IRS is getting creative these days! They’ve noticed that MMORPGs (Massively Multi-player Online Role Playing Games) have extremely intricate monetary systems, and they’re thinking of taxing those systems. Um… what?

I can somewhat understand the move to tax Linden dollars, the currency in the game Second Life, which is the main topic of the CNN Money article. Linden dollars actually have a conversion into cold, hard, American currency. But what bothers me is the mention of taxing the money in World of Warcraft. The logic being that because there’s an exchange of goods, there should be a tax (just as you can tax bartering in the real world). From the article:

Tax law is murky, however, when it comes to dealings that occur solely within Second Life or other computer-simulated environments. For instance, is a transaction that occurs only in Linden dollars and doesn’t involve any real-world, dollar exchange taxable?

and

But there is a valid argument that even profits that come from, and stay in, the virtual world are taxable, according to Bryan Camp, a professor at Texas Tech University School of Law. “As soon as you start looking at what’s going on in these worlds, they look a lot like real economic transactions,” he said.

Even if profit isn’t realized in real dollars, there’s still an exchange of items of economic value. In the real world, if someone trades goods or services without the exchange of real money – also known as bartering – that’s a taxable event, Camp noted.

Now, I’ve never played World of Warcraft (although many people have tried to convince me!), but I have played Everquest and Guild Wars (oh man, my geek is showing!), so I feel qualified enough to comment on this.

Basically, it’s a giant crock. Sure, you’re exchanging goods and services… in the game. And yeah, some people do sell game money on eBay. But you have to, have to, have to remember that it’s still a game. Unless the IRS is prepared to tax my Monopoly winnings, they should really stay out of this.

That is, of course, unless they’re going to allow you to pay your entire tax bill in game money. After all, if they’re taxing you for both your day job income and your game income, you should be able to pay your taxes entirely in either currency.

And I’m really not that opposed to paying my taxes entirely in Guild Wars gold. You know, provided I can still get my refund checks in gold ole American dollars! ;o)

9 responses to “Pay Taxes on Imaginary Money!”

  1. Arrow

    I think they are referring to when people create characters in WoW and sell them on Ebay to people who want to play but don’t want to start at level 1. There’s a real exchange of currency, but it’s not local to any region or state, which is why the government is trying to figure out how to tax it.

  2. Nathan Shayefar

    I was going to tackle the same issue from a different standpoint (How To Make Money with MMORPGs) but never finished the draft post.

    Great article; definitely something to be wary of.

  3. Power Plays « Higgie’s Medium

    [...] Even the feds are in on it, apparently virtual world illegal gaming has risen concerns. Blogger, Stephanie’s “Poorer Than You” also has some interesting commentary on the tax implications of virtual income made [...]

  4. kunochan.com » Blog Archive » When Experts Expound on Things They Know Nothing About

    [...] Poorer Than You, an article on CNN Money called “Second Life’s looming tax [...]

  5. MapMod v2

    I agree, virtual and real world is two different things. As for me, it is better to level up your real life then virtual =))

  6. MapMod v2

    Hmm, I think this is a bad idea. Not only I have to pay taxes in real life but in virtual too. That’s stupid…

  7. Greg

    The IRS is so lame. They would tax the dead if they could.

    Try WOW it’s good.

  8. Jon Smith

    Greg: Fairly sure they do tax the dead, or do you not have inheritance tax in the USA?