The Taxman Cometh to Virtual Worlds - Death, Taxes, and Bureaucracy
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But the jury is still out on this one. Camp says he is working on an article in which he argues that at least some profits from transfers of virtual goods aren't taxable. Putting that point aside, however, the idea that virtual goods might be taxable even if no real money changes hands raises all sorts of issues. What happens when a hardcore gamer finally bites the big one in real life?
William LaPiana, a wills, trusts, and estates professor at New York Law School, pointed out that the transfer of a gamer's account after their death could be taxable, assuming it counts as property (which is still questionable under some EULAs). That would only matter if the estate's assets at the time of death exceeded the limit set by the state in which the deceased gamer lived. That limit could be as high as $2 million, or it could be lower - in other words, Ailin Graef's heirs might actually have to worry about this.
One Slashdot observer gave an example of the kinds of problems this could cause. Imagine that someone close to you used to play in a MMORPG and acquired some magical items, platinum pieces, and maybe a virtual castle somewhere. This person doesn't even play in the game anymore, but in the meantime the magical items he possesses aren't dropping anymore, so they're ultra-rare (and ultra-valuable, with the last known one going for tens of thousands of dollars on eBay). If this former gamer has a heart attack and dies, and you're his heir, you inherit all of these virtual objects that you might not even have known about, and don't really know how to convert into cash - and you now owe the IRS real money for all of it.
Theoretically, this could also apply to barter - so those even exchanges you might have made with your guildmates because you had something he could use better than you (and vice versa) suddenly don't look so even to the IRS. This could bring a whole new aspect to MMORPGs: record keeping that only a dyed-in-the-wool accountant could love. One online game publisher thinks this "would be an apocalypse for developers." Matt Mihaly, CEO of Iron Realms, notes that it "would make running (massively multiplayer online games like "EverQuest" or WoW) an unprofitable business to be in, except for the biggest publishers. We'd spend all of our time tracking deals between players. I don't know how we'd deal with the fact that we're creating wealth every time a monster makes a drop, or there's a reward."
Fortunately, the real world hasn't gone quite that crazy yet. Dan Miller, a senior economist on the Joint Economic Committee which is examining virtual worlds, thinks that "it is incumbent on us to set the terms and the debate so we have shaped tax policy toward virtual worlds and virtual economies in a favorable way." That doesn't necessarily mean most favorable for the IRS. Committee chairman Jim Saxton notes that "There is a concern that the IRS might step forward with regulations that start taxing transactions that occur within virtual economies. This, I believe, would be a mistake." We can only hope that the lawmakers who are also fans of (and players within) virtual economies - and there are more of them than you might think - want to hold onto those +5 Boots of Arse-kicking without paying a tax on them.
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