[MUD-Dev] Real money and virtual worlds

[Ron Gabbard]

From: "Amanda Walker" <amanda at alfar.com>
> On 11/13/02 4:42 AM, Dave Trump <trump at trumps.net> wrote:

>> I saw something today about the states agreeing on internet
>> taxation.  How long until the IRS, Federal Govt, perhaps even
>> Microsoft or some other nafarious organization comes and trys to
>> get the cut they think they deserve from your ingame dealings?

> This came up several months ago on the list during the blacksnow
> discussion, as I recall.  This is one of the dangers of claiming
> that in-game assets have real-world value.  For things like eBay
> auctions, claiming "miscellaneous income" is probably sufficient,
> but the general principle is that if you make real money on a
> transaction, the IRS wants you to pay real income tax on it.  No
> free lunch.

It gets a little messier than that... Remember why Wheel of Fortune
went to a straight-cash payout instead of having contestants buy
prizes with their winnings?  The winners would come off the show
with $X,000 in trips, sofas, jet skis, etc. then have to pay taxes
on these items.  The IRS didn't care that the items were won in a
game.  Once virtual items have an established (eBay) market price in
real $, what's the difference?

Going down the slippery slope a bit, let's say that the federal
government someday decides that online-gaming is bad (for whatever
reason).  They don't have to go up against the 1st Amendment to
fight online game companies, they can use tax laws.  Remember when
Wisconsin was told by the federal government that they had to raise
their legal drinking age from 18 to 21?  They had no authority to
make this demand.  However, the federal government held the
pocketbook for federal highway funds and threatened to withhold
funding unless Wisconsin raised their drinking age.  Wisconsin has a
21 yo drinking age now.

It's not unlike the federal government to use money and tax laws to
force entities, over which they would usually have no authority, to
do their will.  The establishment of efficient market prices through
online auctions for ingame items is just the hook the federal
government needs to make the case that virtual items have real world
value and the "winning" of such items is taxable should they ever
want to play that card.

Cheers,

Ron


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