Taxing Your Fantasy Assets

The realization that people are making real-world earnings from goods and services offered in online multi-player games has been the subject of news reports, and inspired Charles Stross’ deftly-handled Halting State.

Even the government, in the person of IRS Taxpayer Advocate Nina Olson, has finally caught a sniff of the escaping revenue:

Her report said that about $1 billion in real dollars changed hands in computer-based environments during 2005. Additionally, more than 16 million people are said to have active subscriptions in these worlds, “many of which have their own virtual economies and currencies.”

A Chaos Manor reader submitted that link and Jerry Pournelle answered with pointed humor:

Astonishing. Is there anything left to tax? Must we send quarterly withholding for killing monsters on World of Warcraft? Will Blizzard automate this so that whenever you kill a monster it shows something like “your share of the loot is 1 Gold 4 Silver with 30 pieces of silver withheld”?

(Speaking again of Charlie Stross, he will be doing a Q&A and a signing at Pandemonium Books in Cambridge, MA on February 10 at 7 p.m.)

[Thanks to Steve Davidson for the Stross link.]

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2 thoughts on “Taxing Your Fantasy Assets

  1. Interesting fact. If $1 billion exchanged hands, that means there are bank records somewhere showing that money was deposited for those goods and services. Hence, the the funds “Should” be reported as income and I think the next logical steps are obvious from that point. Unless the people accepting payment for these services are doing something interesting to hide the money from the government, I don’t think the IRS has anything to worry about in terms of the monies they are collecting for these sources of income. I mean, I do privet consulting on the side for some companies, and no matter how they pay me the money goes into a bank account here in the US. Therefore, unless I’m really stupid and want to run my chances, I report it as income.

    I guess I’m just not motivated enough to hide my money from the government. Alas, I’m a product of my generation: too lazy care, to apathetic to change, a slave to the man because it takes too much energy to rebel.

    But if the man starts taking silver for every kill a person racks up on a Blizzard WarCraft server…(in some bizarre Twilight Zone reality) they may just wake the sleeping giant. That might actually make a great script to a movie. 🙂

  2. Anyone sufficiently interested can download a PDF of this segment of the 2008 Taxpayer Advocate’s Report, and read the multi-page discussion beginning at internal page 214.

    The lack of technical tax merit to the issue is evident from the fact that one of the subheads near the end is: “IRS guidance could improve taxpayer compliance even if it simply clarified that inworld transactions are not taxable.”

    Who needs the clarification? I’m pretty confident no gamer would contemplate paying tax on any game transaction unless and until it was cashed out in real money. The article’s many footnotes hint that the only people needing IRS guidance are the writers for tax journals who stirred up the question in the first place.

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