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Massive Calculator of Accounting, +5

goldcoins.jpgCould you imagine receiving an itemized tax bill every month along with your subscription to an online role-playing game? That's a far more likely scenario than you might think -- and it's another manifestation of the growing convergence of the "real" and the virtual worlds.

Writer Julian Dibbell has long studied the sociology of online interactive behavior, and he (along with many other researchers) is fascinated by the economic aspects of the "massively multiplayer" games. Given that the virtual currencies (such as gold pieces used in World of Warcraft) have real, if unofficial, dollar values, Dibbell began to wonder: would the transactions using these virtual currencies be subject to American tax law?

The concept of taxing virtual currencies is not without precedent.

In the United States in the 1970s, so-called "barter clubs" sprung up all over the place as a way for individuals to offer products or services to other individuals without the hassle or paperwork of business licenses and sales receipts. Of course, barter, while useful, is inefficient -- there isn't always a match between what bartering partners need for an exchange -- so the clubs started implementing "barter credits" to serve as a stand-in currency. A sufficient number of transactions happened in this way that the Internal Revenue Service (the national taxation agency, for those of you outside the US) took notice; soon, the IRS determined that these transactions should be taxable, as people were earning goods, services and credits that had real dollar value, even if never actually denominated as such.

What Dibbell found is that the IRS isn't getting ready to tax your WoW gold pieces any time soon -- but that they may consider doing so in the years to come. Right now, around the world, over five million people play World of Warcraft alone, and the populations of other games (such as Second Life, Lineage, Star Wars Galaxies and many more) add another few million more. While this is a substantial number, it's still small enough that the virtual transactions they contain remain under the tax collector's radar.

But it's not too long ago that the #1 game had only about a million players; one can easily imagine a game showing up in a few years' time that gathers a player base measured in the tens of millions. At some point, the economic activity taking place in these games, activity that has a real-world value that already measures in the millions of dollars, will be impossible for governments to ignore.

There's a larger dynamic at work here, too. Increasingly, interactions in online virtual environments both reflect and influence behaviors in the "real" world, from personal and business relationships to political organization and (of course) economic transactions. In some respects, this differs little from other group activities or spaces (such as a sporting event or a theme park), but the layer of virtuality adds complexities that even the World Cup or Disneyland can't match. For example:

  • Simultaneous participation by people around the world.
  • Persistence of presence, such that even when "logged out" one can continue to interact through (depending upon the game) auctions, pre-programmed "bots," or buyer/seller agents.
  • "Ownership" of goods and spaces, be they magic swords, constructed vehicles or even homesteads.
  • Activities not bound by rules of custom, law or physics.

    I strongly suspect that a virtual presence will become increasingly important to our day-to-day lives over the next decade or so. Important not as a replacement for reality, and not as an escape, but as social augmentation. These environments are, in the end, a medium for interacting with other people, not just pixels on the screen.

  • Comments (7)

    We live in a very strange little world, dont we...


    Sounds as though every time we begin to be a bit creative in the way we live, interact, and share goods and services, the powers that be look for anotjer way to dip their hands into our pockets for their 'cut' whether they actually deserve it or not, and more important whether or not they ctually return the benefits of that 'double dip' back to the community that generates it.....

    Daniel Haran:

    I played World of Warcraft for a few months. My priestess would have wanted representation for her gold.

    Many of these issues are already very significant in the regulation, or lack thereof, of online betting and wagering which is crude but monetarily much more significant version of online games.

    If you win a lot of money at a badly constructed offshore c-a-s-i-n-o [Please note I spelled it this way to be able to post here.] site, which, depending on where you live, can be illegal, the government is definitely going to want to know about this.

    And commenting on Micheal's comment, people have been complaining about taxes since the invention of governments.

    It seems a necessary evil, if only because the government sees that money is spent on things don't have any obvious initial value--like, for example, scientific research. Imagine trying to fund something like Arpanet or the national telephone network on purely private patronage. Taxes may suck but occasionally, very occasionally, they do get spent on things that later turn out to be very useful.


    Will losses be deductable?

    Ultimately, this would mean that economics within a game would have to be better managed - which, at the least, seemed to be a problem with Asheron's Call (where a character of mine was a lord or king or whatever for a while), and would make 'fluffing' more difficult, as well as smurfing.

    The amusing flip side of this is that losing virtual money in those games could be an interesting tax break by simply having characters that lose a certain amount of money every month. LOL.

    Andre Noth:

    As one of the original BETA testers for Everquest (aka. EVERCRACK..and for good reason)and player of many other online roleplaying games, I fully understand the use and misuse of buying virtual in a very real world. There are many pros and cons to dealing with a monatary system that exists only in the cyber world.
    When floating through the games different denominations of currency have different real world values. Such as in Lineage 1 gold can equal anywhere from $1 all the way to the extreme of $10. Every game you play has this same fluctuation built in, supply and demand.
    By taxing a player who wants to get ahead in the game several outcomes can occur. 1) the players find a more deviant way around such things thus causing "tax evasion". In a cyber world people are much to tactical to keep buying off a place such as Ebay if taxing players does occur. 2) The players will decide it is not worth it and quit playing the game because the rich have become to rich in the game and therefore push out low level people. 3) The virtual economy will flurish and all will be honky dory (not likely).
    The biggest problem with virtual money in the first place is how it is obtained. In the games people already complain about companies that hire people to go and make money all day in the real world or "farm" the lands. BOTS are created the automatically go around and destroy creatures for their wealth thus causing real players to either flee the area or destroy the farmer. In some games destroying the farmer can have real bad consequences (I found out the hard way which caused me to quit playing Lineage 2.)
    All in all there are many aspects that must be looked at before ever thinking of taxing players for virtual money. Wouldn't it be easier just to put a higher tax on the companies that cause people to have to go to Ebay and buy virtual money?


    This page contains a single entry from the blog posted on January 7, 2006 1:10 PM.

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