Itchy Thumbs

Completing games then reviewing them

BBC and US government in missing the point shocker

Posted by D on October 20, 2006

The BBC are running an article about the US government’s investigation into online economies. I suspect the US IRS know exactly what they are talking about and our dear reporter doesn’t have a clue. Most in game economies are at best rudimentary (despite some people’s best efforts) but perhaps there is something interesting to be gleaned about emerging economic models.

But reading that article either the US government don’t have a fucking clue or the BBC reporter is very confused and probably needs a lie down after they’ve had their coco. First of all; Second Life, why anyone would spend time using this glorified chat room is beyond me but it does posses one interesting mechanic: you can freely interchange in-game monies for real monies. The upshot of this is that you can actually earn a real world living making items (robot avatars, dresses, S&M equipment (I kid you not), etc…) for other characters to purchase in the game world. Now as I understand it any income you generate in this way (even though the point of sale transaction happens in virtual currency) is taxable. People have just been passing under the radar up until now.

The thing that’s completely batshit in that article is that it conflates the real money you can earn using Second life (because you can convert in game money in to real world money) and the in-game currency you earn in-game for selling lewt within games like WoW. It also implies that you earn money through the process of “gold farming”. You don’t, you earn money by selling the data (in-game currency) that you’ve generated through “gold farming”. However these types of transactions happen solely in the real world with real world currency. You can’t convert WoW gold into real world cash directly, Blizzard just don’t support that. And what’s more blizzard don’t even allow it. The licence that covers your WoW character leaves ownership of all data within the game world on their servers with Blizzard. You don’t own any of that data. Selling your character on ebay or selling in-game gold constitues fraud (as well as that income being liable for tax). You don’t own those things so you have no right to pass them off as your own and sell them to others. Some games are different, the licence for Eve Online allows players to trade their in-game items in the real world. Once again though, if you’re earning money from this you will liable for tax on your earnings.

The article quotes Jim Saxton suggesting that people are worried that the US IRS might tax in-game transactions. This makes no sense for WoW or Eve Online, what happens in the game has no real world impact. What happens in the game stays in the game, no real money is spent no real money is earnt. I really don’t understand who the mystery people who might be worried about this are? I suspect that they are either making this up or they (the reporter) fundamentally mis-understands people’s actual concerns. Second Life on the other hand might be a target for an in-game tax, this might make sense but it makes no sense for the point of taxation to be in game. When people convert their ingame currency into real world currency makes more sense as the correct point of taxation and there are already mechanisims in place for taxing declared earnings. That people aren’t declaring there earnings should be more of a concern to the tax office than anything else.

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