Paying Real life taxes on virtual transactions

it’s more like Taxes, Death, Taxes nowadays

Interesting semantics issue. I was under the impression that “illegal” means “against the law”, where law is established by the legislature. A civil contract is not law, you are not doing something “illegal” by breaking a contract, you are simply not obeying the terms of the contract and thus you are in breach of contract.

Breach of contract != illegal

Yes?

Did I somehow give the impression that I though it meant that? Clearly, you don’t go to prison for every speeding ticket you receive. That doesn’t change the fact that you cannot be criminally prosecuted for selling gold in World of Warcraft.

Gold selling is not a crime.

Exactly. As you said, it’s quite semantic; I only brought it up because I think it helps explain why the government might consider codifying rules for taxing the sale of in-game assets: They can do so without being seen as “accepting crime.” It wouldn’t be like codifying rules for taxing prostitutes or drug dealers. There’s nothing inherently wrong with the government countenancing breech of contract.

Whether it’s ethical for the government to countenance this sort of breech of contract is, of course, a whole other issue.

But Blizzard will argue that the assets are owned by an individual: corporation/fictitious person Blizzard Inc. You are just licensing use of the assets under limited terms. No matter which way the argument goes, I think everyone will have to agree it’s just bits on a server. It’s not like the IRS is going to be arguing that there’s an actual, existing Sword of a Thousand Truths.

I always thought it applied to criminal and civil wrongs, but I don’t actually know. If the law says that doing X is wrong and provides a remedy to the person wronged, “illegal” seems like as good a word as any. It’s something the law says you can’t do (or rather, if you do it, you will pay the price).

I think the IRS wanting to tax gold grinds in MMO’s is a non-story. Everytime it comes up it is complete BS.

So does IGE pay corporate tax then?

Presumably they have a set of costs (“salaries” for their farmers and other employees, Bandwidth account subscriptions etc) and a source of income (people paying US dollars for WOW Gold). If one is bigger than the other, then a profit is made, and corporate tax is due.

Similarly if someone sends me a cheque for something, then it forms part of my income for the year that should be declared on my tax return. How I earnt that income is of no interest to the taxman.

EDIT: already said

That’s funny, I always regarded “illegal” as something actually punishable by the criminal justice system. Civil wrongs, being handled by a different justice system (although often by the same judge that handles criminal cases), have always been something different to me. I’d have a hard time characterizing a contractual breach as “illegal,” but then maybe I’ve read too much Posner.

Not necessarily. If I sell my copy of Bad Day LA on eBay, someone will send me money that may or may not be taxable income. If I paid $30 for it and sold it for $20, I didn’t turn a profit, I just changed the nature of the asset in my possession ($20 game into $20 cash). Nothing taxable there, at least in the US.

If, however, I bought 50 copies for $5 each and sell them for $10 each, I’m turning a profit and creating taxable income. But then, I’d still get to deduct my eBay/PayPal fees, cost of goods, etc.

Which comes full circle back to the basic crux of the issue - how “profit” would be tracked so that it could be taxed. I could see cost as the subscription fee, plus potentially any internet connection fees. Add onto that any expenses incurred from buying online assets, and you’d have a basis to compare your total sales against. The onus of proving your costs, as always, would be on you.

It become an issue on how IGE reports to the goverment. They could give you a 1099.

If you’re making an appreciable amount of income from selling gold (by that, I mean more than a few thousand dollars) you’re going to want to declare it on your taxes. The reason I say that is if the IRS ever does find out about it, either from an audit of IGE (if they are based in the states) or a personal audit, or something, the penaltes can be pretty severe.

Even though the item you sold wasn’t real, you got real money for it, and that’s the part the IRS is concerned about.

I’m pretty sure that counts as an unrealized capital gain until you decide to sell it for real money.

Pretty much any time money changes hands, the government wants to find some way to tax the transaction.

Who knows where they’re based, but if they’re organized as a U.S. corporation they certainly pay U.S. corporate taxes. I don’t know how it works for foreign corporations with significant presence and earnings in the U.S. But the idea that IGE might pay no taxes because all they do is buy and sell virtual property for real money – that doesn’t wash. By that logic Blizzard wouldn’t have to pay any taxes either.

It’s a really sticky situation / gray area, and it’ll be very interesting to see how it works out. I mean, if IGE doesn’t give you a 1099, I don’t know how you even go about declaring the income, unless you fill out the forms as a small business owner or whatever. It’s funny, the more I think about it, the more I think that I could set up Ryan’s WoW Emporium as a California S Corporation, declare a business loss every year because I suck at WoW and never have any gold to sell, and use it to offset my regular income. I’d get to write off my DSL connection, my computer, my WoW sub, etc.

Just kidding IRS! Please don’t audit me.

You just declare it as “other income.”

In terms of making money from illegal acts, remember they didn’t get Capone on his racketeering, they got him on tax evasion.

Blizzard would say that it’s all just a bunch of bits on their server so it’s all theirs, but by that definition most of the assets in this country are stored as a bunch of bits on a server somewhere, yet there is legal precedent that those assets are owned by individuals.

Except that Blizzard creates and stores those bits and the in game objects they represent, the player pays for access to them. In the case of WoW there is very little that indicates any legal possession of anything in game by the players.