On Babies and Bathwater

While I think the result of the virtual taxation discussion is going to be the adoption of an entirely non-controversial cash-out rule, I was shocked at the subtext: are we seriously willing to give up private property to avoid taxes?  We need to remember why we like private property in the first place.

Imagine the following virtual world: the government owns everything; players own limited trading rights in personal property, but no rights in real property.  The government is the final owner of everything, and uses its power to keep some people from gaining an unfair advantage in terms of game wealth.

Oh wait.  We're not talking about a virtual world at all.  We're talking about the Soviet Union.   I'm not  making a political statement here, just an economic one. 

Why do we like private property?  A couple of reasons.  First off, if the government owns the property, redistribution often happens to people who are involved in government, rather than people who need the resources.  We'll call this first problem "lobbying," although lobbying is the more democratic manifestation of this problem. 

Second, private property causes private owners to internalize all costs imposed by resource use.  So, if I own a pizza, I may conserve the pieces of the pizza to eat over several days.  But if I share a pizza, I have an incentive to gobble as many pieces right now as possible, before other people get them.   (For the economically minded, this is your basic econ 101 tragedy of the commons.)

Third, private property ensures that property doesn't become so fragmented as to prevent it from flowing in the stream of commerce to people who need it.  If I want to buy a tractor, but one person owns the steering wheel, another owns the engine, and a third owns the wheels, it becomes too costly for me to negotiate with all these people to buy a steering wheel.

All of these reasons apply to virtual worlds.  And taxation doesn't threaten any of them -- in fact the story of taxation is an incredibly good story for us.  Why?  Taxed activities are activities that are generating value.  Do we want virtual worlds to generate value? Yeah!  Taxed activities are activities that are shared by enough people in a society to have recognized utility.  Do we want virtual worlds to take center stage in society? Yeah!

And taxes are not total.  No taxes are 100%.  Seriously, if anyone reading this is willing to give up private property to avoid taxation, please, give me all your property.  I'll pay the taxes on it.

This "let's ditch property to avoid tax" subtext is part and parcel of the "let's eliminate private property in virtual worlds to avoid people from outside the world 'importing' the advantage of their paychecks into the world" approach.  But why don't we collectivize property in the real world as a means of preventing certain players from getting an unfair advantage? 

I mean, if you don't like e-babies, how can you stand debutantes? If you think there's a difference, someone tell me why it's ok that Paris Hilton "imports" wealth into her game o' life through inheritance, but it's not ok that a dentist imports wealth into a virtual world through his real world bank account.

The reason we put up with e-babies and debutantes is because we want to create incentives for people to invest and build.  In the context of virtual worlds we want to create incentives for people to invest and build in virtual worlds.  It's as simple as that.

Are there serious concerns about impacting games?  Yes, there are.  But what an enormous shame it would be if, in order to protect games, we threw away the possibility of a global three-dimensional social context, in which parties invest, build, and work.  Protect games.  But don't throw the baby out with the bathwater.

Comments

[Thomas]

"Why? Taxed activities are activities that are generating value. Do we want virtual worlds to generate value? Yeah!"

Nay!

When you bring money into any kind of game, it stops being leisure, and turns into a business instead.

Ideally, I see virtual worlds as giving a kind of freedom, not to become merely extensions of the existing rat race.

[Fearless]

So let me get this straight... taxation provides an incentive? Taxation protects property? Since when?

It's not that taxes on virtual property don't make sense (and they don't), it's that the existence of virtual properties brings into question the principles behind taxation in meatspace.

If a government demands a share of my income simply because I inhabit its territory... how is that different from being a serf in the Middle Ages? Perhaps in degree, but not in principle. If I must pay a tax for possessing a car or a house, are they truly mine, or am I merely free to claim ownership so long as I pay off the government?

What exactly does the government do to deserve a cut from profits generated by activities within, say, Second Life? Absolutely nothing. (For that matter, what does it do to justify taxation in this life? Very little.) Eventually, it boils down to "We must tax profits from virtual worlds because not doing so would be unfair to people who pay real-world taxes." Yes, by all means, let us plunder all fairly. Not.

[Hellinar]

Joshua> Oh wait. We're not talking about a virtual world at all. We're talking about the Soviet Union. I'm not making a political statement here, just an economic one. <

An interesting and somewhat illuminating analogy. Where I see it breaking down is that the objects in worlds like EQ and WoW are in fact private property. They are the property of corporate entities that have commercial reasons to limit their depredations on their subjects. If the citizens feel that “government” employees are excessively corrupt, they will be off to another world.

The Soviet Union had the power to send dissident citizens to the Gulag or the firing squad. Which allowed it to get pretty dysfunctional before it collapsed. A virtual world can send a dissident character to the Gulag, but that doesn’t stop the Player pressing the cancel button. That’s a big limit on overreaching power the Soviet Union didn’t have.

As long as there are many competing virtual worlds to visit, and my residence there is voluntary, I don’t have much problem with a ruling entity “owning” the objects in the world. And ceding that ownership and control to my character in a variety of interesting ways. Or not at all.

[Matt Mihaly]

Hellinar has the right of it, I think.

Joshua Fairfield wrote:

I mean, if you don't like e-babies, how can you stand debutantes? If you think there's a difference, someone tell me why it's ok that Paris Hilton "imports" wealth into her game o' life through inheritance, but it's not ok that a dentist imports wealth into a virtual world through his real world bank account.

Well, of course, there are many prominent people (Warren Buffet, Robert Gates (Bill's father), etc) who do not believe it's ok to import wealth into the game of life via inheritance. I'm not one of them, but I don't think the arguments they make against unlimited inheritance are wacky or way out there.

For my part, I can't take objections against bringing real-world money into games seriously as long as the people objecting aren't also strenuously objecting to games that reward other real-world assets, like rl friends playing the game with you, education, typing speed, bandwidth throughput, CPU/graphics card strength, and so on.

--matt

[Sarapen]

I'm not making a political statement here, just an economic one.

I can't believe I'm the first one pointing this out, but economic statements are also political statements. In your example, for instance, a certain type of economic structure was supported only by a specific political structure.

Perhaps I'm wrong, but I don't think too many game design companies have Public Admin types or political theorists on staff, so it'll be interesting watching companies try to manipulate the economics of virtual worlds without also addressing the political aspects.

I mean, if you don't like e-babies, how can you stand debutantes? If you think there's a difference, someone tell me why it's ok that Paris Hilton "imports" wealth into her game o' life through inheritance, but it's not ok that a dentist imports wealth into a virtual world through his real world bank account.

I don't think it's okay for ascribed wealth to exist anywhere, and quite a few people also think the same way. However, Paris Hilton and her peers have much more power than me. The reason I put up with debutantes is because I have to. If I actually tried living life like the wealthy didn't exist, I would probably get the living shit kicked out of me. Which is to say that just because something exists doesn't mean all or even most people want it to exist.

It's not fun living in a world of great material inequality, especially when that inequality is inherited. A virtual world that incorporated ascribed wealth (i.e., not earned by the person) would also incorporate ascribed inequality. And who wants to be (relatively) poor when you haven't done anything at all to deserve that? Who would sign up for a game like that?

[Raph]

Urg,the property meme again.

All the issues of RMT and microtransactions typically get caught up in the question of what a virtual item is. So let’s settle that issue once and for all. A digital item is made up of database entries. It’s bits and bytes living on a server. It may have been made the same folks who operate the server, or it may not have. It may have been uploaded by someone who pays for the privilege of manipulating the data on the server, or it may have been uploaded by someone who gets access for free.

In some cases, these bits and bytes might be a unique arrangement of data, in which case it is probably copyrighted to someone. In some cases, it may actually be a record of activity instead, in which case and under some laws, it might be subject to privacy laws instead.

In no sense are any of these database entries “objects.”

When you play Pangya Golf, you in fact do pay using a microtransaction. You do so in order to increment a database entry labelled “points.” This is the same as when you purchase Microsoft Live points or when you purchase cell phone minutes or when you purchase acorns in CyWorld. From this point forward, there is no longer a real-world economic transaction. In the dominant model of microtransactions, you are actually using the “wallet” model.

Purchases of new outfits for your golfer, new Live Arcade games, or new furniture for your house are no longer truly “microtransactions.” They are the reduction of a number in one field, and the addition of some data to another. It may be data that says you have access to a given other field in a database, or it might be a change in the records that state that you have access to download something — at which point the download system can go ahead and verify that, then initiate the download.

This may seem stupidly obvious, but it’s worth going over because so many people misinterpret the issue of real money trades for digital items. When one person sells another an EverQuest sword, what is being traded is not actually an item (as in a retail supermarket) or even a stand-in for an item (as in markets for precious metals or pork bellies) or even bytes representing a bet on future price trajectories (as in futures markets), but rather moving some bytes from one column to another that have no analogue whatsoever.

In fact, in the case of EverQuest, you are not even moving a copy of the sword’s information. You are only moving a pointer to the sword’s information, because in practice, there is only one sword defined in a template database. Each local copy is an illusion; your inventory says “you have Sword X.” In many of these worlds, you can think of a piece of equipment and a skill as being exactly the same thing. The same is true for that clothing you purchased in Pangya or that chair you bought in Habbo.

- from Are Microtransactions Actually the Future?

[Douglas Thomas]

It would help me wrap my head around this whole debate by answering a simple question: What exactly in WoW do I own?

My understanding is that I own nothing.

I understand that if I sell my character on Ebay, I can be taxed for that exchange, but that seems to me a fundamentally different question.

Don't we already have tax laws about "cashing out?" Why aren' they sufficient? I would think the IRS could say, "Hey l33tWarrior192 gave you $5000 on Dec 1, 2006. Why didn't you declare it as income?"

What is it that I am missing?

[Michael Chui]

What exactly does the government do to deserve a cut from profits generated by activities within, say, Second Life? Absolutely nothing. (For that matter, what does it do to justify taxation in this life? Very little.)

Actually, I was under the impression that taxes are used for public service projects, ranging from DoD gizmos for the war of the future to paving over potholes in the roads you drive on. In the case of virtual worlds, I'm surprised no one has pointed out that it's server maintenance, staff payroll, and bandwidth.

[Bryan Camp]

Ralph wrote "Purchases of new outfits for your golfer, new Live Arcade games, or new furniture for your house are no longer truly “microtransactions.” They are the reduction of a number in one field, and the addition of some data to another."

And when I pay my mortgage bill online, that is also "just a reduction of a number in one field" (the field my bank says represents the amount of dollars I have a contractual right to ask it for) and "the addition of some data to another" (the field that my mortgage company says represents the amount of dollars that it has a contractual right to ask me for).

And then if I itemize, I can transfer some of that reduction in numbers in my bank account field to Schedule A and reduce the numbers in the data field on the Form 1040 that says "TAXES DUE" Now THAT's a transfer I like to see.

I like Owen Kerr's Georgetown Law Rev. article on Perspective in internet law. It addresses Ralph's concerns pretty well, I think.

Regards, -bryan

[Lavant]

Thomas said, "When you bring money into any kind of game, it stops being leisure, and turns into a business instead."

How so?

External Perspective
Games cost money to play in the first place. Perhaps when you bring money into any kind of game, it merely raises the stakes of the game increasing risk and reward....If you call that business...so be it...but what is to say that such productive play does not make the game more enjoyable, even leisurly? RMT is productive play, a quite enjoyable profession for some, especially as compared to the countless number of mundane jobs out there.

Internal Perspective
The very existence of money is what makes games fun. People spend countless hours at auction houses inside WoW, EQ2 and the like. More fundamentally, however, where would Second Life be without Linden Dollars. I'm still trying to find some worthwhile loot. Is there a ninja around?

Tax Implications
From an economic perspective, taxes impose a deadweight loss on society. Yet the deadweight loss of eliminating private property would be greater. Thus to reiterate what has been hinted at here: it is much better to live with taxes than no private property. Yet in order to deserve a peice of the pie, the government needs to earn it, especially through increased representation inside these synthetic spaces.

[Prokofy Neva]

Oh wait. We're not talking about a virtual world at all. We're talking about the Soviet Union. I'm not making a political statement here, just an economic one.

Thank you. I've been saying this for about 4 years, and everyone thinks I'm a nutter. Because it *is* the problem. In their zeal to have "information wants to be free" and "copyleft" and "copybot" and all the rest, the tekkies are merely reiterating the old Bolshevik precepts of state-owned, communal property that everyone can endlessly take -- but of course, what comes with that is that a few get to cream off the best stuff first, and when nobody owns anything, everybody takes it and doesn't value it. It's ruination.

First off, if the government owns the property, redistribution often happens to people who are involved in government, rather than people who need the resources.

Thank you, thank you again. See, with the concept of "open-source," what really happens is that privileged insiders with knowledge, right out of Snowcrash, get to grab it and make their proprietary secret applications *first* -- that's all.

It's an age-old story. Yes, when people arrogate to themselves the idea of distributing wealth, inevitably the distributors become unaccountable. And that's why we have the layers of privilege we have in SL, for example with all the accompanying unfreedoms, like hysterical hectoring and moralizing about people who sell freebies that are in fact clicked off "transfer" by owners who could in fact decide to either sell them for a price or click 'no transfer'; or the failure of those screaming FUD about copybot to see the fatal flaw in their argumentation -- that they are lording it over others merely by having figured out a way -- for now! -- to keep their scripts from being copied.

Yes, there will be quite the lobby of people -- everyone from Hamlet Au to libsecondlife to the Creative Commons gang in SL and numerous scripters and FIC tekkies -- who will be more than happy to throw out "property" and will scream "taxes" as if this would limit their endless freedom to create.

See, this is how it will work: those who work their asses off for micropayments with their hours of labour and who would like property rights and the right not to have their stuff copied and stolen will be portrayed as filled with FUD, backward, stupid, panicky, etc. Of course, all they will be doing is behaving like normal people in the real world, and also paying customers who signed a TOS they thought gave them some emulation of IP.

Their opponents filled with CARPS (conceit, arrogance, rationalization, pride, and self-reference) will go on hectoring them and name-calling them and blaming them for Congress taking an interest in "restricting freedoms" with "taxation" -- which some content-creators frankly already pay to real-life governments in the course of things as businesses. Why will they be able to get away with this?

Because the CARPS people do not take micro-payments, but get their macropayments the old-fashioned snail-mail way as checks in the mail from big-business. If they work in a metaversal consulting firm and have a contract with a Sony or a Warner Brothers or whatever, they get paid real-life dollars that they pay tax on in RL. Taxes are something they've already paid with their huge (by contrast with micropayments) RL earnings. Therefore, for them, taxing the micropayments is an abstract issue they can afford to huff and puff about merely because it means intrusion on to their lifestyles and oversight of their businesses in ways they'd like to avoid.

The Lindens, too, wanted to create incentives. So they did. They incented. But...now they are likely done. They built it, people came, and now a tiny minority of the people have RL businesses. Either they are such mass producers and sellers that micropayments make up real-life salaries, or they work for RL money outside the game (and game it is, when it is set up like a wierd combination of socialism for some, capitalism for others, chaibol-type oligarchy for others all on one server farm).

Urgh yourself. Raph, you're citing *one point of view on this*. And it is not the game-god incentive view -- unless of course you're willing to concede that game gods like and huckster people into worlds to get them to believe in the emulation of property and IP and then dump them.

"A digital item is made up of database entries. It’s bits and bytes living on a server. It may have been made the same folks who operate the server, or it may not have. It may have been uploaded by someone who pays for the privilege of manipulating the data on the server, or it may have been uploaded by someone who gets access for free.

In some cases, these bits and bytes might be a unique arrangement of data, in which case it is probably copyrighted to someone. In some cases, it may actually be a record of activity instead, in which case and under some laws, it might be subject to privacy laws instead.

In no sense are any of these database entries “objects.”

Says who? Indeed they *are* objects when an avatar enters into a 3-d, streaming, real-time interaction with them. They emulate objects. They may be bits and bytes but the avatar and the person typing for the avatar treats them as tangible commodities in a commodities-based market system.

If each and every thing made can always be snatched back by either server owners or code owners -- my table I just bought as an object for $100 is snatchable in some constant, destructive way -- then who will play?

And I don't mean in the abstract way always rationalized by tekkies -- that yeah, the server owners can shut them off and deprive you of your property.

I mean that if someone makes a table and sells me a table, what I have isn't a license to use his representation of a table like I do Word for Windows, what I have is a table, dammit.

If you don't like this, or find it fanciful, or find it deeply self-delusional, that you have no moral right to go on making tables in virtual worlds. People take them for tables, set them, put lamps on them, use them and enter into an entire host of 3-d interactive relationships with them. This web and hive of activity and relationship means the object is not just a piece of data.

Frankly, we could all say we are objects in the database of Nature or God. But we don't play those Platonic or abstract games in RL. We take a table for a table and don't imagine it disappears when we leave the room or can be snatched back by those running the Platonic ideals. So people take the tables in virtual worlds -- and game gods deliberately set up the system like that to get people to come and play.

So insult this concept by calling it a "property meme" all you want, Raph, and dismiss the social and psychological realities that people create around virtuality if you like by your ownership of the code, but I'm here to say this: you cannot get people to play if you keep insisting on this code-as-law and code-as-reality approach. It is insufficient for not only the explanation but the governance of virtual worlds.

[Prokofy Neva]

Sorry first paragraph of previos post is the OP's.

[Todd]

In response to: Fearless | Dec 11, 2006 11:43:16 AM

What exactly does the government do to deserve a cut from profits generated by activities within, say, Second Life? Absolutely nothing. (For that matter, what does it do to justify taxation in this life? Very little.)

In the case of Second Life its not so much what the do as much as what it did. In your neo-liberal rant you seemed to forget that the it was the US Army (a government agency) through both publicly funded (read government funded through your taxes) Universities (even the private ones receive funding from the National Science Foundation, wow yet another tax funded government agency) that built the very basic infrastructure (read ARPANET/INTERNET) that even allows you to make enough money so that you could be taxed. So please next time you feel the urge to fly around in your Second Life, please remember that the only reason you have a Second Life is because your government wanted to be able to tax you better (oh yeah and kill people more efficiently too).

Todd

[Todd]

In response to: Fearless | Dec 11, 2006 11:43:16 AM

[What exactly does the government do to deserve a cut from profits generated by activities within, say, Second Life? Absolutely nothing. (For that matter, what does it do to justify taxation in this life? Very little.) ]

In the case of Second Life its not so much what the do as much as what it did. In your neo-liberal rant you seemed to forget that the it was the US Army (a government agency) through both publicly funded (read government funded through your taxes) Universities (even the private ones receive funding from the National Science Foundation, wow yet another tax funded government agency) that built the very basic infrastructure (read ARPANET/INTERNET) that even allows you to make enough money so that you could be taxed. So please next time you feel the urge to fly around in your Second Life, please remember that the only reason you have a Second Life is because your government wanted to be able to tax you better (oh yeah and kill people more efficiently too).

Todd

[Andy Havens]

This is a deeply confused discussion. I'm not even sure what the original post was meant to ask or point out.

Joshua said: "Taxed activities are activities that are generating value. Do we want virtual worlds to generate value? Yeah! Taxed activities are activities that are shared by enough people in a society to have recognized utility. Do we want virtual worlds to take center stage in society? Yeah!"

There are major differences between "value" and "revenue" and "utility" and "economy." I value all kinds of things that produce no revenue whatsoever. I come home from work and my son yells, "Daddy's home!" Biggest damn value in my day. Totally non revenue producing. You can take all kinds of money from me, though, before I'd give that up.

Same with "utility." My friend, Jim, gave me a key-chain, Leatherman multi-tool thingamajig as a groomsman's gift when he got married. Best durn gift I ever got from a utility standpoint. I use it probably 5 times a week for various chores. Economic value? About $25 bucks. Utility value to me over the last 10 years? Hundreds of dollars.

We get confused about money in games because some of our games include counters that look and feel like money. And because some of them involve money explicitly, just as do some games in real life. Yes. If you earn real dollars playing any game, including making sex balls in SL or selling mad WoW loot on eBay (even against the TOS), you need to declare that income and pay taxes.

Argument over. It's revenue. It's income. In the US, we pay income taxes on personal revenue no matter where we find it, subject to various (read: millions) of wee loopholes.

But within the games themselves... the "value" of any game activity is based solely on the strength of the overall game and the individual game elements.

If part of the fun of the game is that characters do "economic gamey things," then that's fine. But there is nothing inherently "revenue specific" about your character buying and selling shite in a game as opposed to juggling, hacking, humping, skiing, Tetris-ing, flailing, stripping or wending his/her way through the Ooglobian Nebula in a translucent elf.

Kids play at money games all the time. My niece sells me a cup of tea when we have a tea party for invisible money. I count out dollars into her hand. Sometimes three; sometimes twenty-two. Value? Sure. It's a fun game. Utility? Yes. Teaches her to count.

Value and utility in games? Good lard! If there wasn't, nobody would play them.

But revenue? For the players? In many/most cases, I would hope not. In SL, sure. For those who are playing to get paid. But in non-revenue-explicit game spaces... money (real life money, not in-game money as game mechanic) ends up being an overlay. Which can be quite jarring and bad.

Why? Because it's like the guy you know who takes everything as a sexual innuendo. All you have to say is, "Have you bought your Christmas tree yet this year?" And he leers. Jeez! Why must everything be about...

making money.

Some things are. And that's fine. If, again using SL as the yardstick, we have games where real money is inside the magic circle, that's great. But for many of them... please no.

[Richard Bartle]

Joshua Fairfield>Oh wait. We're not talking about a virtual world at all. We're talking about the Soviet Union.

No we're not, we're talking about a virtual world. You're starting from the premise that the developers of a virtual world are the equivalent of its government; they aren't, they're the equivalent of its gods.

If players within a virtual world wish to organise into a group (a guild, say) and to agree to pay taxes (guild dues, say) then they could expect to have some say in the government (which would be the guild). Within the context of the game, their characters own property; without the context of the game, the developers do. You can't conflate the two except in the case where the developer hands over the property to the players (as in SL).

All your arguments regarding virtual property seem to stem from this belief that characters and players are the same thing, and therefore what characters own, players own. Characters are nested within a context; you're removing an important frame by saying characters' property is players' property. Players don't even own the characters, let alone what the characters own.

>the story of taxation is an incredibly good story for us. Why? Taxed activities are activities that are generating value.

Yes, but not all things that generate value are taxed. Also, not all things that are taxed generate value.

>And taxes are not total. No taxes are 100%.

I recall an Israeli acquaintance of mine in the late 1980s telling me that during times of war they raised income tax for the very wealthy to 110%.

>Seriously, if anyone reading this is willing to give up private property to avoid taxation, please, give me all your property. I'll pay the taxes on it.

Don't you have that thing in the USA where people can avoid inheritance tax by giving works of art to the government? We do here in the UK.

>someone tell me why it's ok that Paris Hilton "imports" wealth into her game o' life through inheritance, but it's not ok that a dentist imports wealth into a virtual world through his real world bank account.

Because people who don't have great wealth can escape the consequences of not having it by playing a game into which importing wealth is forbidden.

>In the context of virtual worlds we want to create incentives for people to invest and build in virtual worlds. It's as simple as that.

People already have incentives to do that. You're saying that we should encourage prostitution because it'll encourage people to have babies.

>But what an enormous shame it would be if, in order to protect games, we threw away the possibility of a global three-dimensional social context, in which parties invest, build, and work.

NO WAY! Games are more important than "the possibility of a global three-dimensional social context in which parties invest, build and work".

>Protect games. But don't throw the baby out with the bathwater.

Don't even risk the bathwater. Strangle that spawn of evil before it grows up and devours all that makes life worth living.

Richard

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[Ace Albion]

SL seems to have three circles of money to me, to confuse the issue.

There's the always in-world L$ to L$ transactions, then there's the bit you sell/buy on Lindex- I have "tier" money sat in my SL account that says it's in USD, but I haven't actually got that money- it's still with Linden Lab as a marker in a database or whatever. They taxed me 3% already to get it that far though :). Then there's the bit I never did yet- getting that USD out to my bank account. I'd have to look into tax declarations etc for that part for sure.

The thing is, if I go to Marks & Spencers and buy a gift voucher, there's tax taken on that. When my aunt hands that in for a gift box of soap or something, is that taxed also? How is this different to me buying L$ (or being granted them in exchange for part of my monthly payment) and then spending that on whatever in world, the powers that be might determine as taxable?

Surely gift vouchers can't be non taxable proxies for money if virtual gold is?

"Imagine the following virtual world: the government owns everything; players own limited trading rights in personal property, but no rights in real property. The government is the final owner of everything, and uses its power to keep some people from gaining an unfair advantage in terms of game wealth."

Doesn't this describe every single virtual world? The devs can always decide to switch it off, in which case you have no claim against them for recovering the property. You have no rights in real property because IT'S NOT REAL. The developers are the final owners of everything. They use their power to keep people from gaining an unfair advantage by banning exploiters, gold farmers, dupers and suchlike.

The real world would be very different if you could dupe food. Scarcity is an inherent property of the real world. It is not a property of virtual worlds. Scarcity is imposed to make the game fun by creating challenges that would not otherwise exist.

If you want to get into a discussion of tax, consider this: should the game developer be charged capital gains tax on all the objects unallocated to players, as they appreciate in value due to the RMT trading of players?

Asking for virtual worlds to be fully connected to the real economy is asking that they be fully globalised. This brings the bad aspects of globalisation as well as the good. It's cool that you can get the +10 sword of uberness for only $9.99, but not cool that it's as the direct result of sweatshop labour in the far east. Having real companies advertise in virtual worlds sounds cool, but then you realise you can no longer escape McDonald's even in WoW, and slowly Norrath becomes just like everywhere else, losing whatever magic and charm of the unfamiliar it may have had.

[Pete]

In EVE: Should CYVOK be able to claim the destruction of his Titan as a deductible against his taxes? What about the Imperial Apocalypse?

[Andrew Crystall]

Prokofy Neva, how much did the RIAA pay you?

Because there are the obvious examples like Apatche which render your argument precisely that of the RIAA. And Blanket Liscencing *is* comming in Europe.

Richard, you're once again blandly asserting that there is a legal division between the acts of a person and his virtual avatar. This...is not supported by precidents (for example, a pseudonyn can be sued for slander, and that case applies to the pseudonym's owner).

Games and virtual worlds are not unique snowflakes, they're bound by the same precidents as apply to other online media like email, IRC and message boards.

You're, from my perspective, stubbornly refusing to accnowledge that the bathwater exists in the first place, let alone that baby might be drowning in it.

I litterally cannot see a way to escape the consequences of real life in a virtual world. The current situation bears a very very good relationship with the USA's prohibition and war on drugs. Political? Sure. But economic statements ARE political.

Pete, wait, he LOST the titan? Sheesh, I am out of touch with events.

In the end, the government should tax realised gains. If I get leet sword 5960, great, no tax. If I sell leet sword 5960 on Ebay, wham, tax.

Raph wrote:

All the issues of RMT and microtransactions typically get caught up in the question of what a virtual item is. So let’s settle that issue once and for all. A digital item is made up of database entries. It’s bits and bytes living on a server. It may have been made the same folks who operate the server, or it may not have. It may have been uploaded by someone who pays for the privilege of manipulating the data on the server, or it may have been uploaded by someone who gets access for free.
---

Heh. Please, make that argument to the SEC, that your stocks aren't property because they're data entries. It's not even a remotely tenable argument in law. Sorry, but economic reality, not tangibility, is the measure of property.

[Joshua_Fairfield]

ack -- that last comment was me, didn't mean for it to be unsigned. Stupid computer. :-)

Andrew: he logged out / crashed with aggro, and BoB probed it down and blew it up. The Imp. Apoc. was flown in the Alliance tournament and lost to the Cult of War team.

Things on the SEC are "things in action"; that is, the database entries represent contracts made between persons. Stocks, bonds, options, etc. all represent agreements between parties about amounts of money or rights to control companies. Shares are not covered by the same laws as real property, they're just an area where the property metaphor has been extended to cover interests in actual property/money.

Intellectual "property" is similar; an area where property-like rights have been created for economic convenience. But again the different types of IP behave in different ways. Compare the ways performers and songwriters are paid; observe the different expiry times for rights in books versus films versus music. Look at the sui generis rights in databases and ASIC designs.

So, what sort of pseudoproperty do you think property in virtual worlds is? It's not something created by law like copyright, nor tradition like trademark, nor contract like shares. What exactly does it stand for?

Or, more simply, the difference between the SEC and WoW or SL is that in the former the controllers of the database are legally prevented from spawning more shares without good reason.

[Andrew Crystall]

Pete, if there's a better commentry on Eve right now, I'm not sure what it would be. But anyway, that's OT.

"Compare the ways performers and songwriters are paid;"

And look at the rise of the blanket liscence in Europe - France only narrowly rejected it last year, and it's comming back there, and the UK is now seriously considering it.

The ways people view IP is changing. The bland assertions that"you may not" may well not stand.

"the controllers of the database are legally prevented from spawning more shares without good reason"

A lot of what they do is very little different than "because" to the average person, mind you.

[splok]

are we seriously willing to give up private property to avoid taxes?

Is this question even valid in regards to virtual worlds? Just because something is private property doesn't necessitate that it also has taxes associated with it. WoW could change its liscensing and EULA to make everything we acquire while playing fully owned by us, and it would not change the fact that so long as a transaction involving said items remains fully within the virtual world, it has no tax implications.

For my part, I can't take objections against bringing real-world money into games seriously as long as the people objecting aren't also strenuously objecting to games that reward other real-world assets, like rl friends playing the game with you, education, typing speed, bandwidth throughput, CPU/graphics card strength, and so on.

also

Games cost money to play in the first place. Perhaps when you bring money into any kind of game, it merely raises the stakes of the game increasing risk and reward

I don't understand how arguements such as these can ignore the issue of scale. Sure, it costs a few dollars a month to play most big mmo's, and sure, you've got to have a computer/connection to play (or an internet cafe). There is definately a lower limit to being able to play or an entry fee, if you will, and its true that having a better computer and connection (and friends, and physical skills such as coordination and speed) might give you an advantage as well (how much of an advantage is certainly debatable though). However, I honestly don't understand how these things create a logical path to "all rmt is ok!"

Consider golf for a moment. Golf certainly has an entry fee. You need a set of clubs, and have to pay some sort of fee to play. Having more money to buy better gear can help too. A $5000 set of clubs will probably give you an advantage over a fifty year old set that you picked up at a garage sale for $10. Better physical ability will certainly help, as will having more experienced friends who can give you tips and pointers.

This sounds pretty comparable to mmo's doesn't it? However, when you go to play golf, can you pay $100 and get a point taken off your score? Can you pay the club pro $100 to come over and chip out of a bunker for you? Should you be able to? I think most people would say no. Why? Well, because it's against the rules. Why again? Well, because it gives an unfair advantage. Why again? Well, one might call it unfair because the person with the most money would have an advantage, and while that's true, I don't think that's the real issue here. Most people who love golf would say its unfair because its supposed to be a game of skill. Paying someone else isn't only against the rules, it isn't only about money, its just plain against the spirit of the game.

"but other things give you advantages!" you cry... Sure, but in any game, there are acceptable and unacceptable advantages. The main one is skill. If you're better at something, you definately have an advantage. You mention typing speed, which is a skill that can be pretty important in some games (although less so with voice com). If that's a part of the game, why shouldn't that be an acceptable advantage? If everyone is always equal, it's a lottery, not a game.

Better computers and better golf clubs can give you an advantage, but it's up to the rulemakers how much of an advantage is allowable in this manner. If paying more gives an insurmountable advantage, it either becomes part of the entry fee by default or it gets outlawed. Golf gear can only do so much unless they turn to illeagal models (which is another arguement altogether), but consider auto racing. In auto racing, how much money you want to spend is very much correlated with your potential performance, so what is their solution? They frequently group people in tiers based in large part on how much it costs to race at a certain level. When more money gives you such a clear advantage, its the only solution.

What we have in mmo's currently is very comparable to paying for score shaving in golf or being able to use an F1 car in a stock race. You can justify it by disagreeing with the rules or the design of the game, but that doesn't keep it from being against the rules (or the spirit) of the game.

When one person sells another an EverQuest sword, what is being traded is not actually an item ..., but rather moving some bytes from one column to another that have no analogue whatsoever.

If person A wants a web site built and pays a designer to do so, what is he buying? an item, a collection of bytes, or a service? I would say that it's clearly a service. Why did be buy it? Well, 1. because he wanted it, and 2. because he was unable or unwilling to get it himself.

If person B wants a Blade of Carnage and pays a farmer to get it, is he buying the bytes or the service of acquiring the bites?

Well, I would say that both people are buying something for the same reason and getting the same result. I don't think the point that the sword is no more than a pointer to an entry in a db somewhere is any more valid than saying hiring someone to move your furniture around in a furnished apartment is silly because they just changed around things you don't even own. Either way, you pay money, someone else does some work, and you get what you want. RMT is really a service, not a buying of items.

[Nobody Fugazi]

"Thank you. I've been saying this for about 4 years, and everyone thinks I'm a nutter. Because it *is* the problem. In their zeal to have "information wants to be free" and "copyleft" and "copybot" and all the rest, the tekkies are merely reiterating the old Bolshevik precepts of state-owned, communal property that everyone can endlessly take -- but of course, what comes with that is that a few get to cream off the best stuff first, and when nobody owns anything, everybody takes it and doesn't value it. It's ruination."

Ahh. This is the same level of thinking which allowed the future of the public domain to be placed into harms way. It's that level of thinking which makes no sense when it comes to roadways and other things which the community *shares*.

Are public roads 'Bolshevik'? Of course they aren't. Is a community library 'Bolshevik'? Of course it isn't. These are the parallels to free software and open source, not what alarmists would have people believe.

And it only took me 3 paragraphs to say that. ;-)

[SH]

>Thank you, thank you again. See, with the concept of "open-source," what really happens is that privileged insiders with knowledge, right out of Snowcrash, get to grab it and make their proprietary secret applications *first* -- that's all.

If I understand correct, Prokofy Neva here is writing satire?

[Lavant]

Splok wrote:

“I don't understand how arguments such as these can ignore the issue of scale. Sure, it costs a few dollars a month to play most big mmo's, and sure, you've got to have a computer/connection to play (or an internet cafe). There is definitely a lower limit to being able to play or an entry fee, if you will, and its true that having a better computer and connection (and friends, and physical skills such as coordination and speed) might give you an advantage as well (how much of an advantage is certainly debatable though). However, I honestly don't understand how these things create a logical path to "all rmt is ok!"

It seems that we are being too narrow-minded. I don't think I was trying to state that "all RMT is ok," but rather trying to dispel the notion that "When you bring money into any kind of game, it stops being leisure, and turns into a business instead." (Thomas) Once the game is bought in the first place, money is in the game. RMT increases the amount of money in the game, on a large scale. Now to what degree is this desirable? My main point was that I don't think that we can say that RMT entirely unwanted, even in the context of Wow (see EQ2 and Station Exchange for similar virtual world analog---- the demand for virtual goods exists and thus is not entirely against the spirit of the game. There are not just a bunch of misbegotten exploiters out there trying to ruin the fun for everyone else. Some hardcore gamers, like myself, would like to see RMT integrated into the game more as is being done in EQ2. The user base defines the spirit of the game. It is the user base that defines the social contract in play. If the people rise to say that RMT is acceptable or unacceptable within a virtual world, then it no doubt should be. As such I wholeheartedly agree that within the context of certain games, RMT is inherently undesirable. (Read: Not all RMT is ok). However, this is not absolute.

Splok also wrote, "RMT is really a service, not a buying of items."

Why be so narrow in our definition of RMT? Of course RMT is a service, but I don't agree that it is not also a buying of items or even something else entirely. It seems that this argument stubbornly refuses to accept the idea virtual items are real. Tell the person killed by leet sword 5960 that the sword isn't real. You wont get far. Reducing the realness of virtual worlds to mere code (see Raph) is counterproductive. I thought we had moved beyond this? Guess not, but thank you Prokofy Neva for moving us forward once more. Realness is collective perception. If society agrees that something is real, then under these rules, it must be. Lets us use an analogy. Take banking and our financial system for example. Through multiple deposit expansion, the money supply is greater than the actual amount of "real" currency in the economy. But no one ever doubts that this money isn't real. Now take the market for bonds. When someone purchases a treasury bill, a piece of paper from the fed, they are not buying a service, nor a good, but rather transferring one store of value to another. In many ways, RMT is just an extension of the derivative market.

[Lavant]

At the end of this last comment meant to read that "no one ever doubts that this money is real" The money is real.

[Raph]

No, the stocks are a bad example. There are actual, real stock certificates that represent actual real ownership of part of an actual real company. The database entries are measurements of the trading activity happening faster than the real life items can keep up. But there are real things there.

No, the mortgage is a bad example too. Again, there is actual real money involved, and an actual house, and actual property values, and so on. Again, the database is just tracking changes in the state of the real market. It isn't in itself the real market, it's a reflection of it.

The virtual stuff is not a reflection of anything and that is what makes it different and unique.

We may choose to perceive the bits and bytes as objects, Prokofy. But we can perceive a house of cards as a house, too.

[Andrew Crystall]

Raph, okay - take Machinamina. Or modern art. Arrangements of otherwise worthless "bits" into something prized. Peoples perception gives things value. (And spending your time to create things of value is gives you certain rights under some countries laws).

I feel you're trying to draw an artificial distinction - and when I talk to casual gamer (the REALLY casual ones - java games, fantasy football and such) friends, they can't see your point. Trying to say "this collection of computer bits has value" and "this does not" SIMPLY because one is in one VW (say, SWG) and one is another VW (say, SL) baffles them.

But they can understand, for example, my stance. That there is no especial problem with individuals trading items for real life cash (although if the world rules say don't...I don't), BUT a company doing the same thing is something else entirely.

Also, while stopping private individuals from engaging in RMT is legally shaky, the opinion I've had is that a company with a contractural relationship with you doing so is NOT shaky, legally - it's blatent abuse.

[Raph]

Machinima, modern art (and in fact ALL art) is in fact intellectual property fixed into a form. The value lies minorly in the container (though some containers can be very valuable) and majorly in the work contained.

The vast majority of digital "items" (excepting SL and other user-created items) are the company's intellectual property.

And the SL case is one where the value does indeed reside in the IP, not the container, since the container is SL itself.

It baffles them because the value in SL lies not in the item, but in the DESIGN of the item, which a user uploaded. In SWG, a user didn't upload it, and the design belongs to the company, and there is no container except SWG itself, and therefore there is no property on the user's part whatsoever. They are likely baffled because they are also baffled by copyright and intellectual property, which baffle most everyone.

Look, I am no anti-RMT firebrand. But it's important to look at how things actually work. It simply isn't a spoon, it's a rendering of one on screen. It isn't even YOUR rendering of it on screen. It's the company's rendering of it. You just happen to have permission to look at it.

[Lavant]

Well said.

[Santiago K.]

But we're talking about political theories..the field is other , but the problem it's the same... Liberalism, Socialism...Anarchism

[Raph]

I missed answering Prokofy, but I'll do that on my own blog. :)

[Richard Bartle]

Andrew Crystall>Richard, you're once again blandly asserting that there is a legal division between the acts of a person and his virtual avatar.

There is. If my avatar kills your avatar, I haven't killed you.

>This...is not supported by precidents (for example, a pseudonyn can be sued for slander, and that case applies to the pseudonym's owner).

Slander is a real-life thing, outside the game's magic circle. If I use a game to slander you (or, in the case of a virtual world, I guess that would be libel) then I can expect to be sued.

However, if you and I both sign up to play a game called SLANDER!, the point of which is to concoct outrageous but persuasive stories about each other that are primarily for the consumption of other players, you don't get to sue me for slander when I bad-mouth you because you knew it was a game and you know I don't actually mean it.

A person can get arrested for making racist remarks in public. If, however, that person is on a stage in front of a thousand people and is playing a character who is racist, they don't get arrested. If they picked on a member of the audience, maybe they would be.

There is a legal division between the acts of a person and those of their avatar, so long as those acts remain within the game's context. When they cross the magic circle, that's when you can merge avatar and player and sue the pants off them.

Richard

[LR]

It's hard to see such a huge amount of right thought said about the wrong thing. When you look at virtual world reality you better first look at what private property is in the real world and what's its function. Private property is a social institution that aim to avoid an endless fight for limited resources. Such an endless fight is unavoidable when you've got few precious resources and too many people looking for that resources. Private property allows few to keep something that a lot of people would like to have (and allows the fact that lot of people accept this as a fact). This is not an ideological statement, this is a short description of how the private property works in the real world; it's the description of WHY it's there. Our society is constructed on this idea of private property that is nowadays is used also to manage unlimited resources such as the intellectual property/copyright. When you move to a virtual world you shift toward some kind of world made of unlimited resources. So the point is completely different.
So if you don't want to say no to the private property, maybe you should ask yourself what kind of private property you could have in a digital world.

[Ace Albion]

So can anyone explain the difference between gold in WoW and Marks & Spencers gift vouchers? At least in terms of taxability.

[splok]

the demand for virtual goods exists and thus is not entirely against the spirit of the game.

I can't really agree here. Certainly the demand for steroids and other performance enhancing substances is great in the sports world, but does that keep it from being against the spirit of the game? Well, maybe if you're being incredibly literal, winning at all costs, even if it requires cheating, might be in the spirit of competition, but I think most of us here would agree that cheating (or should I say "breaking the rules" to keep from starting an arguement about what is and isn't cheating? hehe) is against the spirit of the game, even if it is in high demand.

I think the Station Exchange is actually evidence in support of my viewpoint though. If players want to be able to engage in RMT, that's great. I don't feel that there's anything intrinsicly wrong with that, but I do feel that they should be competing in a different bracket than people who don't wish to engage in it. People that don't want money to be a factor in gaming should have a way of seperating themselves from the gaming of those that do. Of course, this tiering doesn't always work in practice. I'm sure that RMT is alive and well (possibly even moreso)on the servers that don't allow the Station Exchange, and if someone started a sports league where doping was allowed, I'm sure it wouldn't cut down on the doping in normal sports either. Certain people will always do whatever they can to get an edge, but that doesn't mean we shouldn't try. People racing factory spec'd cars might try to fudge the rules a bit here and there, but at least they're not racing F1's.

Through multiple deposit expansion, the money supply is greater than the actual amount of "real" currency in the economy. But no one ever doubts that this money isn't real.

Well, is money even real? It's not as if there are pieces of gold sitting somewhere that your dollars are representing. Money is real and has value simply because our government says so, and other people believe them. In game money is much like real money on a very different scale. The difference in scale is of utmost importance though. The realness of money is limited to its context and its stability (or rather the perception of such).

If you took a stack of $100 bills to a place where all trade was based on barter, your money would be as worthless as your WoW gold. It just so happens that there aren't that many places. The context of our actual cash is pretty much global now. However, the context of your WoW gold is limited to WoW. Outside of that context, it's less than worthless, it doesn't even exist.

Stability is the other issue. Sure, if the US government decided to shut down, the dollar might very well be worthless, but how likely do most people consider this to be? Countries have a pretty good track record of hanging around for a while. However, mmo's are owned by companies. There isn't a group of people elected by its players to make decisions. There isn't a government that at least tries to be fair. They have ultimate and essentially unconditional control over everything. As was mentioned earlier, they are your gods. Sadly, these gods are gods that have a track record of making poor decisions. These gods have a much worse record of stability than governments have, and probably more to the point, these gods are not altruistic. The second it becomes financially beneficial for any of these gods to end their little worlds, they will do so. IGE probaly has millions of dollars worth of virtual currency sitting on their thousands of accounts that could be instantly poofed at the whim of Blizzard, and they would have zero recourse. If they had millions of dollars in a bank, sure, the bank could probably delete their money if they wanted, but at least action could be taken against the bank.

But really, barring the reality of things, I really think RMT is a service. Maybe if you were buying good direcly from the company, it would seem more like a product, but when dealing with third party providers like IGE, someone, somewher actually had to kill mobs for a few hours to get you your gold. Someone somewhere actually had to go and kill the mob that dropped your shiny sword. I suppose you could extrapolate that for any good, but the feeling is certainly reinforced by knowing that the item/gold is fully and completely in the control of our little gods. I'm just allowed to use it for a while. My abillity to use it is leased from Bliz, and I paid a farmer to go and harvest it for me.

[Andrew Crystall]

Raph,

"The vast majority of digital "items" (excepting SL and other user-created items) are the company's intellectual property"

ARGH! This is precisely the bland assertion which I have allways criticised. You are relying on that assertion - which once more is not supported by precident in many countries (especially Asian ones, but I don't believe it will stand in many European countries either) - to block RMT in a prohibition/war on drugs witch hunt.

I consider it outdated, and think it'll be stuck down at some point. So I'm interested in measures beyond that which you can take, both legally and in the game design. Such as explicitly denying the right of companies to operate in your virtual world without a contractual agreement...

Ritchard,

Sure, I didn't mean to imply a 1:1 mapping. But when it comes to the value of your time in a virtual world, it's untested...and I can see very good arguments for it being either way.

[Prokofy Neva]

Not only is it not the company's IP anymore, it's not even the ingame creator's IP any more. While it may be more accurate now to talk about events and not commodities, I still think there is much to be said for the thing-in-itself quality of virtual commodities. I answered Raph on his blog : )
http://www.raphkoster.com/2006/12/12/arguing-about-virtual-property/

Nobody, you're in the wide world of the Internet now, unable to paralyze the gaze by the parochial Planet SL.

>Ahh. This is the same level of thinking which allowed the future of the public domain to be placed into harms way. It's that level of thinking which makes no sense when it comes to roadways and other things which the community *shares*.

I have to wonder again what sectarian cult you subscribe to. The OP made the comparisons to the Soviet Union, not me -- and rightly so. It isn't harming the public domain or harming the public commons by condemning total -- and totalitarian -- state ownership of property. And to throw out taxes just to be able to have props in virtual worlds is utopian communism. Somebody always has to pay.

>Are public roads 'Bolshevik'? Of course they aren't. Is a community library 'Bolshevik'? Of course it isn't. These are the parallels to free software and open source, not what alarmists would have people believe.

Huh? Liberal, democratic, non-Communist RL countries with free market economies make roads and hospitals and libraries. Criticizing communism doesn't lead you to some extreme position that utterly eradicates anything in the public domain or supported by the government. My God, Nobody, you've been on the Internet way too long here. These abstractions and rabid characterizations don't exist in RL.

>And it only took me 3 paragraphs to say that. ;-)

Next time, try six paragraphs, and dilute 3 parts reality to your 3 parts ideology and illusion to get something more approximating the truth of people's lives.

[Andrew Crystall]

Prokofy Neva, except you've managed to miss that a lot of us want to apply capital gains, not income, tax to virtual objects from within a private world (i.e. you pay only on RMT). What objection do you have to that?

Also, those so-wonderful liberal, "democratic" non-communist RL countries from my PoV are locked into mutual suicide pact because the nature of their so-called reprisentative democratic systems by their nature prevent longer term planning, but whatever floats your boat.

[Joshua_Fairfield]

Raph wrote:

No, the stocks are a bad example. There are actual, real stock certificates that represent actual real ownership of part of an actual real company. The database entries are measurements of the trading activity happening faster than the real life items can keep up. But there are real things there.

----

No, that's wrong as a matter of law. Uncertificated securities are book entries. And even stock certificates are documents representing something else: ownership of voting rights and cash flow.

Same thing with your bank account: it's just a data entry. They don't keep the money around, they re-lend it.

This is important: ALL PROPERTY IS VIRTUAL. It's a legal construct. Thus, saying an asset is virtual has no impact on whether it's property, at all.

We might argue validly about whether it's intellectual property, virtual property, personal property, real property, or some sort of new property interest that we are currently in the midst of hashing out.

But tangibility is not the measure of property, as a matter of law.

[Ola Fosheim Grøstad]

Hmm... well, when you pay for a game and then pay "rent" to play it you have a comparable situation to purchasing a right to rent a particular flat. I think it would be strange to tax people for being able to rent a flat which happens to have a very nice view. Maybe you'll be able to sell that right to rent that particular flat, in which case you are taxed for what you get minus your orignal expenses. Most EULAs deny you the right to sell the right you bought to rent (the game box), hence selling it would be violating contract law and can't be taxed because that money is actually money you owe the game company depending on the contract you violated?

Of course, this is not an issue of IP. If you own the original Mona Lisa you would be taxed in most countries. If you have a copy of Mona Lisa you won't be taxed.

The idea of taxing ownership of in-game objects is taxing... You would then be taxed differently based on what server, and how many servers you upload the same design on (assuming user-upload). Or, wipe the design off the servers on new years eve, then upload next day. Or better, reset the server on new years eve, then redistribute wealth based on a function of a hidden score and noise the next day on a new game and make it compatible with old upload formats. Great, now game designers would have to take tax planning into account when doing their work...

[Ken Fox]

Prokofy, your rant against Open Source deeply offends me. If you were a professional musician, would you kick the living shit out of a guy playing his guitar on the sidewalk?

Back to Joshua's topic...

People who sell virtual property must pay income taxes now, right? It's a service job that's not much different than a professional shopper.

The best case scenario is a system of IP law providing enough flexibility for each game developer/owner to decide how property is treated within its game. A developer should not have to worry about lawsuits in response to nerfing items.

[magicback (Frank)]

Instead of talking about property and taxes, we should talk about the rights that the said 'property' confers and the taxation of the monetary gains associated with the rights.

It's understandable that we focus on property because property confers a lot of rights that are useful to us. But the discussion of physical objects, bytes, and database records just obscure the fact that the rights associate with them are what is important: the right to legally sell, the right to legally duplicate, the right to exclude, etc.

The term copyright stems from the concept of a legal right to copy something. The concept doesn't directly concern itself with medium or whether it is a virtual or real property. It's all about the rights to the stuff.

Same thing with IP. IR (Intellectual Rights) could have been just a plausable term because it's all about the rights associated with the intellectual content. No need to talk about containers and embodiments.

So, let's focus on the legal rights that 'property' confers. This way we can include both SL and WoW situations in the same dicussion of taxes.

For example, Blizzard may have legal ownership to all the items in WoW. However, they have implicitly given to players the right to transfer some items from one character to another, but not create new copies. Based on current US IRS tax principle, if you realize monetary gain on the transfer of rights associate with these items, you can be taxed on the gains.

Now, whether IRS going to enforce its right to tax this kind of monetary gain is another issue. Moreover, whether Congress legislate to make legally clear the inclusion or exclusion of this type of monetary gain in the tax code is also another issue. The Korean Government obviously want to make more clear the tax liability of certain businesses involved in the transfer of rights to in-game items (and don't really care about the ownership and property issue).

Conceptually, I'm happy to give up the whole virtual property thing to avoid taxes, but I'm sure not going to give up the rights associated with them. And IRS don't really care one way or the other; they got a broad mandate to tax monetary gains.

And as a nod to the Boston Tea Party, they better not slap a stamp tax on virtual items.

Frank

P.S. it's interesting to note that a few years ago on TN the primary discussion in this area was more focused on the rights and less about the properties.

[Ken Fox]

I wonder if current US law makes a person liable for taxes on in-game income if that game has an exchange rate vs real currency?

Take a look at IRS barter example 3 on this page:
http://www.irs.gov/publications/p525/ar02.html#d0e4691

Why aren't SL folks in the US liable for income tax now?

[Julian Dibbell]

Doug Thomas wrote:

I understand that if I sell my character on Ebay, I can be taxed for that exchange, but that seems to me a fundamentally different question.... Don't we already have tax laws about "cashing out?" Why aren' they sufficient?

------------------------------------

That's a good question, Doug, and the short answer is that we also have tax laws that carve big, weird exceptions out of those cashing-out rules.

This just cannot be said enough, apparently. People who think this whole argument has no foundation in political or legal reality seem not to understand (and can certainly be forgiven for not *wanting* to understand) just how baroque U.S. tax law can be. Ken Fox has just handily pointed us to the relevant IRS literature on this, so let's review:

The two major exceptions to the cash-out principle are barter and prizes.

Example 1: If a carpenter builds a new set of bookshelves for a sculptor and receives in compensation a sculpture made by his customer, the IRS will not wait for a "cash out" moment before taxing both sculptor and carpenter on the market value of what each got out of the trade. The carpenter can swear up and down that the sculpture is priceless to him, will stay in his family forever, and so forth; and the sculptor can argue similarly for the incalculability of the bookshelves' value. But the IRS will be having none of it.

Example 2: If a taxpayer shows up at a taping of the Oprah Winfrey show and learns that Oprah has awarded her a $28,400 Pontiac just for being there, the IRS will not wait for the taxpayer to sell that car before requiring her to report the prize as $28,400 income. "But OMG Oprah gave me that car I will never even wash it let alone sell it!" the taxpayer protests. Please show us the money kthx, the IRS replies. (This actually happened to the 276 "lucky" members of Oprah's live audience at the first show of her 19th season. No, the tax-reporting requirement was not overturned on appeal.)

Now, you can argue that these rules are irrational and bad, but keep in mind that entire armies of professional arguers have been hammering on that point from both sides for decades now, and the rules still stand.

Perhaps more profitably, you could argue that those rules nonetheless don't apply to valuable virtual items acquired in trade or at play. But again, you'd be up against the likes of our own Bryan Camp, tax-law prof and former IRS counsel, who at State of Play the other week delivered a hair-raisingly convincing case for applying the letter of the barter and prize laws to virtual-item transactions.

Happily, Bryan has also argued just as convincingly that virtual transactions should indeed be protected by the cash-out principle. Apparently it's what he actually believes, and apparently it's what he'll be arguing in a forthcoming tax-law journal article (right, Bryan?), but don't be too comforted just knowing that our side of the argument also holds technical water.

The point, finally, is that a purely formal argument (nailing down the definition of virtual property and so forth) isn't what's going to decide this. We happen to care a lot more about MMOs than about any additional tax revenues they might generate, but there are plenty of people in government and elsewhere who probably feel otherwise, and in the end it'll come down to which side yells loudest and/or hits hardest. The IRS will decide accordingly and apply its choice of legal justifications as an afterthought. The law, here, is neither our friend nor our enemy. As ever, it's an ass.