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setec

Could this affect the EL Marketplace inside the US ?

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This sort of seemed ON-topic however if it is off topic, I apologize in advance that you had to move it.

 

Are the EL server's in France or at least outside the US? If so, I am not sure how this will affect EL, if at all.

 

IRS taxation of online game virtual assets inevitable

 

By Daniel Terdiman

Staff Writer, CNET News.com

Published: December 3, 2006, 9:45 AM PST

 

NEW YORK--If you are a hard-core player of virtual worlds like World of Warcraft, Second Life, EverQuest or There, IRS form 1099 may someday soon take on a new meaning for you.

 

That's because game publishers may well in the not-too-distant future have to send the forms--which individuals receive when earning nonemployee income from companies or institutions--to virtual world players engaging in transactions for valuable items like Ultima Online castles, EverQuest weapons or Second Life currency, even when those players don't convert the assets into cash.

 

Most governments are only beginning to become aware of the substantial economic activity in online games, but the games' rapid growth and the substantial value of the many virtual assets changing hands in them is almost certain to bring them into the popular consciousness.

 

"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," said Dan Miller, a senior economist with the Congress' Joint Economic Committee, who is also a fan of virtual worlds. "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."

 

Miller's comments came during a Saturday panel called "Tax and Finance" at the State of Play/Terra Nova symposium, the fourth annual gathering at New York Law School of academics, lawyers and other scholars to talk about the legal, social and economic issues surrounding virtual worlds.

"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."

-- Dan Miller, senior economist

 

The panel was formed in the context of recent questions--first raised by author Julian Dibbel in his book Play Money and in an article he wrote earlier in Legal Affairs magazine--about whether the transfer of virtual assets, or players' acquisition of virtual loot by, for example, killing monsters, creates taxable events.

 

"If you haven't misspent hours battling an Arctic Ogre Lord near an Ice Dungeon or been equally profligate spending time reading the published works of the Internal Revenue Service," Dibbell's article began, "you probably haven't wondered whether the United States government will someday tax your virtual winnings from games played over the Internet. The real question is: Why hasn't it happened already?"

 

And while Miller's committee began examining these issues in October, his comments Saturday suggested there could be wider future congressional oversight and a revised IRS tax policy. That's in spite of the fact that Miller said his committee, and Congress in general, is not out to gouge virtual world players.

 

"The Joint Economic Committee is not seeking to impose a new tax on virtual economies," Miller said. "We have a very clear record of supporting lower taxes in free market."

 

Meanwhile, Miller's fellow panelists also weighed in Saturday on Dibbel's question, and came at it from several different perspectives.

 

First up was William LaPiana, a wills, trusts and estates professor at New York Law School. He approached the question by examining whether estate taxes would accrue on the transfer to an heir of a sizable collection of valuable virtual assets.

 

LaPiana said that there is little question that the transfer of such assets could be taxable, since it is property. However, he did say that the taxes would accrue only if the total value of the estate's assets, at the time of death, exceeded the limit set by the state in which the deceased had lived. In most cases, he said, that amount is $2 million, though some states, like New York and New Jersey, have lower limits.

 

There are not that many instances in which someone has that level of virtual assets, although the recent reports that Second Life land mogul Anshe Chung had amassed $1 million in virtual land and other holdings certainly suggest her heirs might have some interesting inheritance tax issues if she dies.

 

More problematic, LaPiana said, would be laws that require estate administrators to take on responsibility for the proper transfer of assets to beneficiaries. Because most virtual assets are locked behind password-protected accounts, it would be incumbent on the administrator to try to figure out how to get access to those accounts.

 

"Whoever is going to run your estate...has an absolute obligation to collect all your property and make sure that it goes to the (proper) people," LaPiana said. "How do I make sure my trustee has access to this stuff after I die? These are all problems we're going to have to face."

 

Next up, Texas Tech University School of Law tax professor Bryan Camp addressed Dibbel's question with a warning.

 

"Be careful what you ask for," Camp said, "because tax is always behind the corner. Tax is the shadow life" to many issues.

 

Camp said that that section 61 of the U.S. tax code, a 1913 provision, stated clearly that all income, "from whatever source derived," is taxable.

 

Thus, the question of whether the transfer of virtual assets is taxable boils down to determining if there is a profit afterward.

 

As an example, he explained that if two people were to exchange copies of books, one of which is worth $30 and the other worth $24, the person ending up with the more expensive volume would have acquired $6 of taxable income.

 

Another example, he said, was Kyle MacDonald's much-publicized quest to trade up from a red paper clip to a house, which was ultimately successful.

 

"He has massive tax issues," said Camp of MacDonald. "He started with (the value of) a paper clip and ended up with (the value of) a house."

 

MacDonald is Canadian, though, which puts him under Canadian tax law, which Camp did not address.

 

His point is well taken, though: in determining tax liability--regardless of whether the IRS would likely try to collect--it is necessary to figure out how much profit has derived from a transaction.

 

However, Camp also said he is working on a legal journal article in which he will argue that at least some profits from transfers of virtual goods are not taxable.

 

For his part, Miller--who spoke last on the panel--said the Joint Economic Committee is expected to produce a report early next year that will address three goals.

 

First, he said, the report will address the areas, such as tax, cybercrime and education, where virtual worlds connect with public policy and will therefore educate the committee's staff members about such issues.

 

Next, the report will seek to identify future uses of virtual worlds, including those by commercial, nonprofit and governmental bodies.

 

And lastly, the report will specifically investigate the tax issues raised by virtual worlds.

 

"We will look at factual technical questions," Miller said, "like what is a taxable event in a virtual world."

 

And that's where the answer to Dibbel's question is likely to come into clear focus, he suggested.

 

"The key takeaway for the people" at State of Play, Miller said, "is that congressional and IRS interest in this issue is simply a matter of time."

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Guest Sorrowmoon

They obviously have nothing to do and/or enjoy bringing misery. Well lets take an example from EQ.

 

In eq whatever you own, characters, plat, items and so on actualy don't belong to you. It all belongs to sony. They are basicaly just letting you use this stuff on a sort of rental but you in no way own any of it. Also it is forbidden to sell anything or buy anything for real cash. In otherwords that makes the value of the game items 0$. Finaly it's all non-transferable.

 

Many MMO's that I've played follow this pattern.

 

I could go into more detail and talk about what if players do sell items and whatnot but I'm not going to because I'm lazy :D

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Would they accept payment on virtual property in virtual money?

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Guest Sorrowmoon

Would they accept payment on virtual property in virtual money?

 

Ha. How about payment on real property in virtual money?

And does this qualify for time worked? :D

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silly question, sorry... but does the fact that e-l isn't actually hosted in the us makes any difference ? :happy:

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New market post:

@@3 Selling thermal serpant sword, only 200k, +50$ tax. PM ME

 

IRS Sux0rz, bunch of fun sucking rejects... you get my point.

(not really, but I am still angry at them) :evilglare:

 

they should have no right to tax mmorpgs! I swear they are going to start taxing Monopoly (<Board game) some day. Just another was for the government to get money, even though they are like 2 trillion in debt.

 

I think the whole thing is screwed up.

 

My 2 cents

Knight

Edited by The_Knight

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I guess they still need to pay sommat like $2,000,000,000 for the war, taxing MMORPG's would make them some money :happy:

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You know, when someone buys an item, about 1/3 of the price actually goes on taxes (we have to pay them). Of course, you can deduct a lot of stuff, like part of the rent, the server cost, bandwidth, Internet access, etc.

But it's still a lot of money to pay, and we see little in return.

However, the IRS has bigger problems than not taxing MMOs. For example, the federal income tax is quite illegal. If you have some time, try to buy (or download, if you are into that kind of thing) the documentary: "America - from freedom to fascism".

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Guest Sorrowmoon

You know, when someone buys an item, about 1/3 of the price actually goes on taxes (we have to pay them). Of course, you can deduct a lot of stuff, like part of the rent, the server cost, bandwidth, Internet access, etc.

But it's still a lot of money to pay, and we see little in return.

 

Fortunetly I don't live in the US so I don't need to tollorate the IRS. If I did however they'd owe me a few 1000's of $ lost incom from mmo expenditures. Players usualy generates losses not profit. Unless they make a business of it and like you said you get very little return.

 

I view this more as a threat to the gaming comunity. A pretty useless one but a threat none the less. I like playing games it's an escape from this dull life. I don't want to follow the pack and be a happy little automaton.

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You also have to understand that the journalists like to jump to conclusions, because the more outrageous and outlandish an article is, the more readers they will get. I don't think the US government can demand the MMO owners to submit users tax forms to them, it would be totally unconstitutional, and if they do that I will personally start a campaign against it.

There are so many MMO players in the US that the party who would start such a law will never see a vote again from those MMO players.

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Guest Sorrowmoon

Yes you're right. The more insane the story the more money and interest is generated. Probably why I cancelled my news paper subscription a few years ago. Everything in it was not helping my mood. I'm still going to protest by buying something from your shop :happy:

Time to check on my paypal status.

 

Edit:

I sent this PM to rachie as a joke. Figured I'd share.

"Read my pixils. No new taxes!"

Edited by Sorrowmoon

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That's because game publishers may well in the not-too-distant future have to send the forms--which individuals receive when earning nonemployee income from companies or institutions--to virtual world players engaging in transactions for valuable items like Ultima Online castles, EverQuest weapons or Second Life currency, even when those players don't convert the assets into cash.

 

This is the main issue. Characters or in-game items in online games, can be converted into real money at some point. But a player can also opt to trade for items in other online games. Currently, there aren't too many MMO's where you can make profit and there's a lot of grey area's on how to tax that income, when you do.

 

Is it like a performing artist fee, where you can make lots of money by 'working' only a few hours, so an hourly rate isn't applicable, or is it special income, like you washed some guy's car and he payed you well or does the income apply to gambling, since there's an element of luck involved and the payout can be big?

What happens when you trade an item from game X for an item in game Y, for 2k USD value? What if you own a character with items worth 10k USD, never plan to sell/trade, but you die and leave that character to a relative/friend.

 

I don't agree where the IRS lies the burdon of proof, but since people are making money off online games and some are doing that for a living, there needs to be clarity about how this income should be taxed, or even whether it should be taxed at all.

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I'd like to see them prove who owns what account, when we sign up we dont give Radu any personal info, my forum identety says i live in Nebraska for all anyone knows i could live in Hawii and i never give out any more detailed info about me than that, I am Happy_G and i live in Nebraska....now someone come find me in RL and prove that i even play EL let alone that i am Happy_G

 

altho if they found my laptop it would be quite evedent, but thats alot of work, they would have to find me first.

 

i dont understand how they could think that they could charge RL money on a profit you make in-game, you yourself are essencialy making no money off of it. i do understand this whole thing if you sell stuff in the game for RL money, they tax all other RL income y not RL money transfered due to to players in a game.

 

as Ent said, they have to pay taxs when you buy something from the shop.

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I'd like to see them prove who owns what account, when we sign up we dont give Radu any personal info, my forum identety says i live in Nebraska for all anyone knows i could live in Hawii and i never give out any more detailed info about me than that, I am Happy_G and i live in Nebraska....now someone come find me in RL and prove that i even play EL let alone that i am Happy_G

 

Well, that's another issue. It would remove privacy from MMO's, or should I say, yet another excuse to remove the right to privacy from US constitution.

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Well, that's another issue. It would remove privacy from MMO's, or should I say, yet another excuse to remove the right to privacy from US constitution.

 

FYI, there is no right to privacy in the US constitution, nor was there ever one.

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Well, that's another issue. It would remove privacy from MMO's, or should I say, yet another excuse to remove the right to privacy from US constitution.

 

FYI, there is no right to privacy in the US constitution, nor was there ever one.

 

Oh, it's just 'respect for the individual' then? And privacy restrictions based on that right? I don't know how it is here (NL), either. Always seemed like a basic right to me and there's lots of struggle now, with increasing crime rate and terrorist 'threat', to ammend/change some of these rights.

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You know, when someone buys an item, about 1/3 of the price actually goes on taxes (we have to pay them). Of course, you can deduct a lot of stuff, like part of the rent, the server cost, bandwidth, Internet access, etc.

But it's still a lot of money to pay, and we see little in return.

However, the IRS has bigger problems than not taxing MMOs. For example, the federal income tax is quite illegal. If you have some time, try to buy (or download, if you are into that kind of thing) the documentary: "America - from freedom to fascism".

 

Well, I live in the US and would respectfully say it is not a fascist state. That being said, I think the IRS already has plenty of mine and everyone else's money and doesn't need to go into the online world. How would they even enforce such a thing, especially if the servers are out of the country.

 

I think the whole idea is just pure greed and idiotic.

 

Just My Two Cents.

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Did you, like.. watch that documentary?

 

As for the how could they enforce it? Well, the problem is that we are an American business, so it doesn't matter where the servers are. Although the FBI or IRS doesn't have access to our servers whenever they please, they would have to come with some legal request if they want any information, and we of course have the right to challenge that request in courts.

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What I find hilarious is that the American rebelled because of taxes on a couple of items. Now we have taxes on everything (almost) and yet you guys don't do anything...

Besides, I don't think it's right for them to tax Mmorpgs esspecially if they are free. Considering that you admins don't/barely get much out of this it would ruin us. Btw, I would support you guys... but Im too young.

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Living in England i know that we ourselfs are allowed to earn so much before we are taxed on it,and any money made from private sales ie: garage sales/car boot sales/private sales between friends are tax free unless you make a business of it .Take Ebay for example in England you can sell items and not be taxed on your earnings unless said earnings go over a certain amount per annum (when as rightly so the tax office decide you are using ebay as a business and you are taxed)

 

To the point in question. I think the taxing online games is more aimed at the Second life market where a lot of RL money is exchanged for online money and vice versa.now if you could convert your EL gold into RL cash then i think it would be taxable .I dont think EL has any worrys as far as the IRS goes(Reason being there is no inbuilt ingame feature to change your EL gold/assests into RL money as there is in Second life) .. certain individuals might if they sell ingame items for RL cash on a regular basis but that would be a case by case scenario and not EL as a whole.

 

 

 

Edit :

spelling

Edited by conavar

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What I find hilarious is that the American rebelled because of taxes on a couple of items.

That's not really correct. I believe the classic quote is: "No taxation without representation." It wasn't the taxes that created the problem, it was paying taxes to a government without any say in the policies made by that government.

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