Declaring Orc Loot On Your Tax Form - InformationWeek
Business & Finance
05:34 PM
Connect Directly
Building Security for the IoT
Nov 09, 2017
In this webcast, experts discuss the most effective approaches to securing Internet-enabled system ...Read More>>

Declaring Orc Loot On Your Tax Form

A new paper about online game economies such as World of Warcraft suggests ways to avoid losing your shirt, your ax, and your Talisman of Ephemeral Power.

Virtual treasures should be treated like fish when it comes to taxes: taxed upon sale rather than upon acquisition.

That's the position taken by Indiana Law School professor Leandra Lederman in her new paper, 'Stranger Than Fiction': Taxing Virtual Worlds, which delves into the tax consequences of online game economies.

"Even if virtual items constitute virtual property that participants own, drops should not be taxed on receipt because the effort involved to earn them makes them 'taken' property," Lederman writes. "Taken property, such as fish pulled from the ocean, is not taxed until it is sold."

Though many people have absolutely no interest trolls or their treasure, some 10 million people around the globe participate in online virtual worlds and accumulate potentially salable virtual wealth.

In 2006, the massively multiplayer online game market reached $1 billion in the West, according to a recently released study from Screen Digest, a market research firm. World of Warcraft, the most popular massively multiplayer online game, generated $471 million last year, a figure that doesn't include the gray-market sale of game accounts and items. By 2011, Screen Digest projects the massively multiplayer online game subscription market will exceed $1.5 billion.

Perhaps unsurprisingly given the amount of real revenue virtual worlds generate, the U.S. Joint Economic Committee of the U.S. Congress said last October that it would begin looking at the policy issues surrounding virtual worlds.

"Based on existing law, if an individual generates cash income in U.S. dollars from transactions in virtual economies, the question may arise whether a tax is due on that real-world income," the JEC said in a statement issued last year. "However, if the transaction takes place entirely within a virtual economy, then it seems there is no taxable event. Such distinctions should be addressed and resolved in a commonsense manner."

To date, officials like Rep. Jim Saxton (R-N.J.) have advocated a cautious, laissez faire approach. How long that will last remains open to question. If virtual currency, for instance, proves popular with organized crime -- Lederman suggests there's a "risk that intentionally commodified worlds could be used as the 21st century's equivalent of hiding funds offshore" -- the government's light touch may get heavier.

Comment  | 
Print  | 
More Insights
Newest First  |  Oldest First  |  Threaded View
How Enterprises Are Attacking the IT Security Enterprise
How Enterprises Are Attacking the IT Security Enterprise
To learn more about what organizations are doing to tackle attacks and threats we surveyed a group of 300 IT and infosec professionals to find out what their biggest IT security challenges are and what they're doing to defend against today's threats. Download the report to see what they're saying.
Register for InformationWeek Newsletters
White Papers
Current Issue
Digital Transformation Myths & Truths
Transformation is on every IT organization's to-do list, but effectively transforming IT means a major shift in technology as well as business models and culture. In this IT Trend Report, we examine some of the misconceptions of digital transformation and look at steps you can take to succeed technically and culturally.
Twitter Feed
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.
Flash Poll