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.
"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.
Posted by: Thomas | Dec 11, 2006 at 11:42
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.
Posted by: Fearless | Dec 11, 2006 at 11:43
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.
Posted by: Hellinar | Dec 11, 2006 at 11:45
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
Posted by: Matt Mihaly | Dec 11, 2006 at 12:51
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?
Posted by: Sarapen | Dec 11, 2006 at 13:48
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?
Posted by: Raph | Dec 11, 2006 at 14:09
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?
Posted by: Douglas Thomas | Dec 11, 2006 at 14:16
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.
Posted by: Michael Chui | Dec 11, 2006 at 16:40
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
Posted by: Bryan Camp | Dec 11, 2006 at 18:44
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.
Posted by: Lavant | Dec 11, 2006 at 19:55
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.
Posted by: Prokofy Neva | Dec 11, 2006 at 22:39
Sorry first paragraph of previos post is the OP's.
Posted by: Prokofy Neva | Dec 11, 2006 at 22:39
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
Posted by: Todd | Dec 11, 2006 at 23:08
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
Posted by: Todd | Dec 11, 2006 at 23:10
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.
Posted by: Andy Havens | Dec 12, 2006 at 00:33
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
Posted by: Richard Bartle | Dec 12, 2006 at 03:10
All information about Paris Hilton in www.philton.org, the most interesting blogs in en.bitacle.org or one of the best Paris Hilton blogs in www.hiltonparisnews.blogspot.com
Posted by: philton.org | Dec 12, 2006 at 04:52
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?
Posted by: Ace Albion | Dec 12, 2006 at 06:09
"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.
Posted by: | Dec 12, 2006 at 08:21
In EVE: Should CYVOK be able to claim the destruction of his Titan as a deductible against his taxes? What about the Imperial Apocalypse?
Posted by: Pete | Dec 12, 2006 at 08:34
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.
Posted by: Andrew Crystall | Dec 12, 2006 at 10:01
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.
Posted by: | Dec 12, 2006 at 10:22
ack -- that last comment was me, didn't mean for it to be unsigned. Stupid computer. :-)
Posted by: Joshua_Fairfield | Dec 12, 2006 at 10:36
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?
Posted by: | Dec 12, 2006 at 11:07
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.
Posted by: | Dec 12, 2006 at 11:09
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.
Posted by: Andrew Crystall | Dec 12, 2006 at 12:42
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.
Posted by: splok | Dec 12, 2006 at 13:01
"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. ;-)
Posted by: Nobody Fugazi | Dec 12, 2006 at 15:11
>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?
Posted by: SH | Dec 12, 2006 at 16:11
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.
Posted by: Lavant | Dec 12, 2006 at 18:04
At the end of this last comment meant to read that "no one ever doubts that this money is real" The money is real.
Posted by: Lavant | Dec 12, 2006 at 18:10
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.
Posted by: Raph | Dec 12, 2006 at 19:40
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.
Posted by: Andrew Crystall | Dec 12, 2006 at 20:41
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.
Posted by: Raph | Dec 12, 2006 at 22:07
Well said.
Posted by: Lavant | Dec 12, 2006 at 22:08
But we're talking about political theories..the field is other , but the problem it's the same... Liberalism, Socialism...Anarchism
Posted by: Santiago K. | Dec 12, 2006 at 23:35
I missed answering Prokofy, but I'll do that on my own blog. :)
Posted by: Raph | Dec 13, 2006 at 01:51
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
Posted by: Richard Bartle | Dec 13, 2006 at 03:21
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.
Posted by: LR | Dec 13, 2006 at 03:31
So can anyone explain the difference between gold in WoW and Marks & Spencers gift vouchers? At least in terms of taxability.
Posted by: Ace Albion | Dec 13, 2006 at 04:00
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.
Posted by: splok | Dec 13, 2006 at 04:29
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.
Posted by: Andrew Crystall | Dec 13, 2006 at 05:59
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.
Posted by: Prokofy Neva | Dec 13, 2006 at 07:54
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.
Posted by: Andrew Crystall | Dec 13, 2006 at 08:04
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.
Posted by: Joshua_Fairfield | Dec 13, 2006 at 08:51
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...
Posted by: Ola Fosheim Grøstad | Dec 13, 2006 at 09:01
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.
Posted by: Ken Fox | Dec 13, 2006 at 09:51
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.
Posted by: magicback (Frank) | Dec 13, 2006 at 11:46
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?
Posted by: Ken Fox | Dec 13, 2006 at 11:59
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.
Posted by: Julian Dibbell | Dec 13, 2006 at 13:27
Does this mean that the US legislation doesn't distinguish between different types of taxable income in terms of profession, skill and luck (lottery)?
Posted by: Ola Fosheim Grøstad | Dec 13, 2006 at 14:09
Right, Julian! Paper coming soon to an SSRN link near you. There is a very respectable technical argument why virtual transactions do not trigger gross income. There is also a variety of normative arguments against taxation(which many folks have made on this and other threads). That said, there is also a respectable technical argument for why the virtual transactions do indeed produce gross income, even though it is in the form of bits and bytes residing on some game owner's server. And you can bet your sweet virtual bibby that some conehead Congressional staffer (perhaps a frustrated Warlock stuck at some level of play?) will find the "let's tax it" argument. That is why Dan Miller's paper should be very helpful, as will, hopefully, what I can put together: to preempt the protaxsters.
Cheers, -bryan (off now to see his daughter dance as a mouse in the local community Nutcracker)
Posted by: Bryan Camp | Dec 13, 2006 at 19:03
Ola Fosheim Grøstad,
You've made a common mistake. You've conflated EULA's and contracts. A contract, under most countries laws has a basic structure which involves a two-way trade. A EULA is a one-way grant of rights. But it does vary.
(A good example of a similar situation is web hosting TOS/AUP's - most smaller web hosts prefer to use those rather than a formal contract for a lot of reasons)
Also, it dosn't matter HOW you make the cash. Al Capone was finally jailed for tax evasion, for example.
And, er, a copy of the Mona Lisa is worth a LOT less than the origional. However, you could still be liable for, say, its value in inheritence tax...
Posted by: Andrew Crystall | Dec 13, 2006 at 19:41
Barter income would most likely be reported as self-employed income. This is taxed at the individual's normal rate which is often lower than the tax rate on capital gains (investment income) or corporate income. However, additional welfare-related federal taxes, state and local taxes may also be due. Some states tax different professions differently, but I doubt virtual property barter is a category in any state. :)
The complexity in US taxes appears on the expense side with many different types of deductions and exemptions. It's a very complex system for calculating your "taxable" income, but then everyone uses the same table to see what they owe.
Posted by: Ken Fox | Dec 13, 2006 at 20:25
Bryan --
I'd asked in the other thread, but it's as easy to do it here. How does your account approach deal with (1) virtual goods that are most efficiently conceived of at the level of use (this is Michael Heller's point) and not at the level of the account; and (2) account for the value of property in lowering negotiation and information costs?
I'm not completely opposed to your approach (and absolutely in favor of your outcome), as I said earlier, but unless I miss my guess, you're still trying to eliminate property to avoid tax, right? I'd love to read the draft.
Posted by: Joshua Fairfield | Dec 13, 2006 at 20:42
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...
Er... OK. Let me restate. "The vast majority of items in virtual worlds are ones where the user didn't make anything -- they are not like SL or other user-content worlds, they are ones where employees of the company designed them, drew them, modeled them, textured them, specced them, coded them, and then stored them in a company owned database."
You seriously think this is a "bland assertion"? It has zero to do with RMT, here. It is about plain fact. The above is the fact for say, a SWG item or an EQ item or a WOW item. It is a database entry containing company-created stats and company created functionality and company-created artwork. How is this not company owned?
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.
I think we're talking past each other to some degree here.
I am not asserting that there has to be a tangible item at the other end. I am saying that there is a difference between a database entry ABOUT something and a database entry that IS something.
The sorts of transactions that happen over stocks or mortgage payments or whatever are all just POINTERS back to something else. That other thing is real property as we define it in the law. You trace the stock trade back to the money and the book entries, which you can trace back to certificates, which you trace back in practice to the company which is a legal entity with standing that is well understood and can be owned by one or many, which you can trace back to valuation of the company via its own property, which comes in the forms of capital, physical assets, IP, and so on.
Are many of those things "virtual" in the sense that they are consensus driven? Absolutely. But the point is that the database entries are pointers to constructs we all agree are definable as "property."
The digital table in EQ2 is not. The one you have in your inventory is not even a copy of it -- it's a pointer to the master copy. Said master copy resides on the company's server. It consists of some numbers, some text, and some data that represents a 3d model, its collisions, and so on. There are intellectual property rights in the look of the table, the texture, and so on. There's intellectual property rights in that arrangement of numbers. They're all held by the creator, who likely did it as work for hire for the company.
Nobody gets to just "upload" a stock entry into the database. When we manipulate that data, we are in fact manipulating real world data.
Phew, I think that this is a long-winded way of saying that I agree with you that it's about economic reality. My argument is not about whether there is tangibility at the end of the chain -- it's about whether there is something recognized economically under the chain.
What I am calling "the property meme" is the notion that somehow the bits and bytes created by Anon Artist at BigCo as a work for hire are somehow going to transmute into something owned by the user who is merely getting them streamed down for client-end display as part of their paid access to a server whose function is to stream down bits and bytes in particular arrangements. How the streaming-and-permission-to-see arrangement changes into user-owns-this under my sort of reasonable legal definition is beyond me.
Posted by: Raph | Dec 13, 2006 at 21:06
Joshua, why the fixation on property? Services are just as taxable and a heck of a lot easier to demonstrate in a virtual world. When someone buys a rare item, aren't they essentially paying for the time it took to find it? That sounds like a service job.
We may well end up paying taxes, but not have property either.
Posted by: Ken Fox | Dec 13, 2006 at 21:16
Raph, it is company created, sure. ACCESS to the Sword of Foozlewhacking, which the player spent time to get, however...
(See: Microplayment models in other games where you DO pay for access to the Sword of Foozlewhacking...)
I don't see it makes a difference, basically, to the legal side of things. There are plenty of "just access" services sold...
Posted by: Andrew Crystall | Dec 14, 2006 at 06:26
Ken Fox wrote:
Joshua, why the fixation on property? Services are just as taxable and a heck of a lot easier to demonstrate in a virtual world. When someone buys a rare item, aren't they essentially paying for the time it took to find it? That sounds like a service job.
We may well end up paying taxes, but not have property either.
----
That's a great question. My answer is that property is just the tip of the iceberg. Torts, constitutional law, all of these ought to have valence online. Right now, all of these things are being wiped out by a mistaken view of the role of contract in virtual worlds.
When law moved online the law of contract made the jump unimpeded, and left most of the rest of the common law behind. Now contract law is trying to regulate communities with multilateral obligations. Contracts cannot do that -- they can only create bilateral obligations. Moreover, they are expensive to obtain: imagine obtaining contractual consent from everyone in the world not to trespass on your property.
So, the reason I keep plugging property law is because it is the set of multilateral -- not bilateral -- obligations that keep our economy humming in the real world.
But let's be clear: we could say the same thing about tort law (can one player sue another for fraud? They sure can't sue under the EULA...) or constitutional law (Hmm. First Amendment doesn't work in "private" spaces, yet that's where all the speech on the internet is happening. Time for a new paradigm?) as well.
Posted by: | Dec 14, 2006 at 08:49
That prior was me.
I usually avoid really getting into law, on TN, because the law is a wierd place for those who haven't been thrown into the vat -- er -- law school -- in order to obtain strange powers.
But, I figured, what the hell. Here's what's really going down, in my book.
There are some basic breakdowns in the common law -- that's the U.S. legal system inherited from the U.K.
Constitutional law regulates public law obligations between government and citizen. Tort law regulates behavior between citizens. Property law regulates resource rights between citizens. Finally, Contract law permits citizens to roll their own obligations.
In a more technical sense, contract law permits us to maximize the wealth of society by enabling gainful trades. If I would prefer to have $5, and you would prefer to have a baseball card, then I trade you my baseball card for $5. Society gets more wealthy.
So the thing to remember here is: we enforce contracts to protect gainful trades.
Now, property law exists to ensure that high value resources can get into high-need hands. What we want to do with property law is define a clear set of rights (so that it's cheap to determine WHAT we're trading) and gather useful property rights together in one person's hands (so that we only have to go to one person to trade).
I'll give an example. When Russia privatized after the end of the Cold War, it indeed created private property rights over various resources. (This example is NOT MINE -- it's Heller's). So, let's consider a bakery. One worker's collective had private rights in the building. Another had rights in the actual bakery space. Another had rights in the cash flow generated by the bakery. It was like the bakery had been split up and bits of it spread around to various private owners.
Heller used this example to show why there were illegal kiosks on Moscow streets that were FULL of goods, but the store-fronts were empty. The reason? It was easier to negotiate with one party -- Russian crime syndicates -- for permission to set up shop on the street, than it was to bargain with all of the different private parties to get access to a store-front. The fact that the property rights were fragmented raised the costs of negotiating for the property through the roof.
Ok, if you're the kind of person who skips long paragraphs, HERE'S THE SHORT VERSION:
Contract law enables parties to maximize gains from trade; property law ensures that those trades are cheap and quick.
So, when we've got a system that is using contract law to disable all trades, we have a problem.
Remember -- this is a law perspective. I have nothing to say on this from the perspective of philosophy, technology, or ludology.
Posted by: Joshua Fairfield | Dec 14, 2006 at 09:07
Raph, it is company created, sure. ACCESS to the Sword of Foozlewhacking, which the player spent time to get, however...
RIght. But you don't claim to own the YouTube clip you just streamed down. It took you time to find it, but that doesn't confer ownership of the IP. Really, it's a fairly comparable situation.
As you say, it's centrally about access, and there are lots of examples of access-based models.
Such as cable service, where you have free play, premium tier, and pay per view.
Posted by: Raph | Dec 14, 2006 at 11:19
Raph,
If you want MMO's to be compared to a streaming service, then people are going to view them in the same light - they're not worth the same as a comparable product they can KEEP.
Also, the story's only just broken that Itunes sales have crashed. AllofMP3's business, on the other hand, is blooming. The British government is openly considering a blanket music downloading liscence.
The entire business model based arround the assumption that the consumer does not mind hard limits on software and media they are paying for is allready crumbling.
There are plenty of MMO's out there allready - smaller ones, to be true, but many profitable - which are using microtransactions and even SOE have their exchange service.
I'm not pro-RMT as such. I just think the entire blanket witch hunt does a lot of damage to games, and turns off large portions of the potential market base. And I view exploiting, botting and corperate profiteering as being an entirely seperate issue in terms of prevention that Jimmy selling that Sword of Foozlewhacking on Ebay so he can buy Gears of War.
Posted by: Andrew Crystall | Dec 14, 2006 at 12:13
Okay, not quite done: That YouTube clip did not take you time and effort to obtain, even if it was not your own creation. If YouTube made you solve a complex brainteaser puzzle before you could send the URL of the video clip to other people, would it be nearly as successful?
And yes, a lot of the content was/is illegal. The scale of the flouting proves to me a problem with the legal structure, more than anything.
Many EULA's - and MMO games are so of the more egrarious examples - claim things which won't stand if it ever makes it to court. They're not contracts, they're liscences and in some cases portions the "lawyer speak" hasn't been upheld because of that in message board EULA's and sp on, for example.
Posted by: Andrew Crystall | Dec 14, 2006 at 12:21
In a prior thread, Joshua said: "Although I support your goal, Bryan, I have to say -- eliminating private property is an expensive way to avoid taxes. Not something I'd propose in real life by any means. It also won't work, since, for example, the presence of property in Second Life is undeniable. I think it's better to understand virtual property as property but, since, as you say, function trumps form, enact a taxation rule that makes sense for that particular kind of property."
In the current thread, Joshua said: "How does your account approach deal with (1) virtual goods that are most efficiently conceived of at the level of use (this is Michael Heller's point) and not at the level of the account; and (2) account for the value of property in lowering negotiation and information costs?"
I locate the property rights at the level of the player account and not at the level of the virtual items because it is the account that is the chose in action. Without an account in good standing you do not have any potential rights to use the Chalice of Malice. Nor can you "acquire" the Chalice of Malice unless you have an online account since it does not exist except in the context of the game (unless you short it against the box (i.e. engage in forward contracts for such items) but that would still invovle real world transactions so there is no accession to wealth being missed.
Right now, I am thinking that all virtual "property" is best viewed as services---it has no meaning or value outside the context of the game envirionment (or the virtual world environment, if you prefer). Thus viewed, virtual items are heavily contingent on game play decisions made by the gave developers and oweners.
Tax consequence are more likely to follow inworld trades if you locate the property rights at the level of virtual items. Once virtual items break out of the magic circle, then that would trigger a tax consequence.
You can't fly a Cubey Terra Airplane outside of SL. And SL could change the rules (code) to make all Cubey Terra Airplanes not fly. So long as that is true, then selling virtual airplanes for virtual assets or Lindens is a trade that has no tax consequences. But if you insert a property rule that SL cannot change the rules (code) and so ground Cubey Terra airplanes, then you have taken that airplane outside the magic circle. While it still cannot fly outside of SL, you now have given it an actionable right to fly within SL. That right is a chose in action. Property.
The consequences of my current thinking are that if Cubey Terra wants to sell the virtual business, then that gets taxed as ordinary income, not capital gains, because it is not the sale of "property" within the meaning of section 1221. But if the oweners of Cubey Terra want to sell their accounts, then they are selling property. Of course, noone sells his or her account in an inworld transaction....do they?
These comments are all in the nature of thinking aloud and I welcome all reactions. ...perhaps I should post this on BigNova? Is this the backchannel? what the hell do I know....
Cheers, -bryan
Posted by: Bryan Camp | Dec 14, 2006 at 14:12
Bryan: "I locate the property rights at the level of the player account and not at the level of the virtual items because it is the account that is the chose in action."
What about a case in which virtual items are portable between virtual worlds separately owned? In such a case, the intangible property right it inheres in the item (database entry, whatever ...).
Jeff Cole
Posted by: Jeff Cole | Dec 14, 2006 at 14:50
Jeff, can you give an example of that for me?
Thanks, -bryan
Posted by: Bryan Camp | Dec 14, 2006 at 16:19
Blockquote by Raph.Fixed.
Posted by: Michael Chui | Dec 14, 2006 at 16:20
Andrew Crystal: You've made a common mistake. You've conflated EULA's and contracts.
No. I never mentioned EULAs, their legal status in my country is uncertain. You need permission/contract to do things that you otherwise don't have a right to do, though. Hence I assume a contract. If none exist those mandated by consumer laws will apply (in my country that is "common practice", which atm isn't really in favour of users I believe).
I'd still like to know if you can be taxed for winning the lottery in the US, though.
Posted by: Ola Fosheim Grøstad | Dec 14, 2006 at 16:31
Yes, you do get taxed if you win the lottery in the US
Posted by: Lavant | Dec 14, 2006 at 16:52
Hi Ola, yes, lottery winnings are taxed in the US, although you do not have to pay tax on the entire amount if you choose to take it as an annuity (a right to a certain stream of yearly payments). But if you later sell the annuity, then even though it is property that you are selling (the ole chose in action), it produces ordinary income and not capital gain.
Hope that helps, -bryan
Posted by: Bryan Camp | Dec 14, 2006 at 17:05
Thanks for a very detailed account. :-) I guess that means you can construct a luck-based virtual world where players can withdraw a limited amount of cash each year then. Hmm...
Posted by: Ola Fosheim Grøstad | Dec 14, 2006 at 17:33
Such a virtual world would be entropic. ;-)
Posted by: Thomas Malaby | Dec 14, 2006 at 17:36
Ola Fosheim Grøstad, well, the EULA is in most countries a liscence rather than a contract (as there is no negociation or two-way give and take). This affects the applicable law.
Posted by: Andrew Crystall | Dec 14, 2006 at 17:39
Andrew; yes, but you don't have a right to resell a service/server-configuration/whatever if you never had the right before you made the purchase? Seems like the service provider would be entitled to have damages covered if users starts unauthorized reselling on ebay. (The issue outside the US is related to the EULAs being hidden when you purchase the box, thus it is possible that you may have more rights than what the EULA gives you if it is more restrictive than what follows from common practice for similar products, unless the salesman informs you of this "defect". IANAL.)
Thomas, don't get me wrong. I am not in favour of mixing real life economies with virtual ones, like Entropia and SL do... I think it could be fun with charity-fundraising lottery-like gameplay built into big games (for grownups), with a rare prize as a carrot.
Posted by: Ola Fosheim Grøstad | Dec 14, 2006 at 18:16
Interesting stuff Bryan, thanks.
I think I understand what you said about selling planes, but what about selling plane rides?
Also, what makes selling plane rides in SL different than selling plane rides in another country? Americans living overseas pay US income tax. I find it hard to believe that a service taking place in a virtual world would be exempt if the real world analogue is taxed.
Sadly I don't have the benefit of three years in "the vat". :)
Posted by: Ken Fox | Dec 14, 2006 at 18:51
Ola Fosheim Grøstad, but they are allready mixed. That games companies don't generally approve dosn't matter, they ARE.
And no, if you resell with the common TOS/AUP's used in web hosting (which are NOT contracts, debliberately), the usual recourse of the service provider is to cut off your server access, close your account and to not return any of your money you had paid in advance. Oh, and to bounce and complaint emails as spam.
However, I'd be hard pressed to call an exchange within a MMO reselling. And if it IS reselling, then we're back to the core tax issue - because it is then taxable.
Posted by: Andrew Crystall | Dec 14, 2006 at 19:51
Bryan:
I am not aware of any current implementation, but it is hardly outrageous to imagine a "franchise" model in which the developer and the player are not in privity and players could port objects between multiple "franchises."
Or, to bring it closer to home, two separately owned virtual worlds (e.g. SL-like) between which players could port objects (e.g. houses) even if the ultimate expression of the objects (e.g. the skins) were not identical (e.g. a level 5 estate in one world ports to a level 5 estate in another world).
I just don't understand from where the need to strain the physical analogy springs. For all intents and purposes (and despite Raph's protestations) why should we legally not treat a virtual item as property? After all, the legal term-of-art "property" describes more the bundle of rights associated with a "thing" than the "thing" itself.[FN1]
Jeff Cole
FN1. More than one lawyer has posted here about bank accounts being "property" even though a bank account is more appropriately "contract."
Posted by: Jeff Cole | Dec 14, 2006 at 22:09
Andrew, I agree that it is mixed up. I wouldn't be surprised if a court decides that the customer selling assets is acting in good faith. I doubt most customers understand the difference between a license and a copy either, so perhaps they are entitled to what they purchase as a "copied item" unless they are informed that they don't get a copy. Most older people would probably expect the same ownership of a game as what they get from buying a book. Not sure about the younger generation.
Posted by: Ola Fosheim Grøstad | Dec 14, 2006 at 22:47
At 22, I "expect the same ownership of a game as what [I] get from buying a book."
Posted by: | Dec 15, 2006 at 00:10
Trying to somehow regulate the SL-alike MMORPGs, is pointless . Even if you succeed to make a good law , that law is gonna kill the game; why ? because you cannot come from the USA in China to enforce that law on me. If it is a game, then i buy it on a CD or i pay the " on line time " subscription.If you are trying to make it a " virtual business " , then your country 's regulations are void in my country. RMT ? Ofcourse , and there is no need and infact is impossible to regulate it ; no matter of ownership or EULA's, i have some skills and items on my avatar and im selling them. You cannot controll this.Ofcourse, you as developer , you want a share; you build an E-Bay. But im not gonna pay your fee. As long as the MMORPGs depends economically on the " internationally spread ", you cannot make laws for them.Ops, sorry : you can, but you cannot enforce them.
Posted by: Amarilla | Dec 15, 2006 at 03:15
I have acquired a lot of useful knowledge reading this topic. Valuable information, in fact. If services are the same as property and barter is taxable, how much do I owe HM Gov for the free education I just received by reading this topic? If a teacher educates you without a fee, is that not still taxable? Can anyone talk to anyone around their own field of expertise without providing a valuable (and therefore taxable) service?
And I still don't know how virtual currencies compare against gift vouchers for tax purposes.
Posted by: Ace Albion | Dec 15, 2006 at 07:28
Amarilla, hence something called the "World Trade Organisation", and one of its goals, "Harmonising IP law".
Posted by: Andrew Crystall | Dec 15, 2006 at 11:47
Hi all, a couple of points in respose to past posts. A lot of the discussion seems to circle around the idea of "property" which is where Josh started off in his initial post. Right now, I am thinking that conceptions of property will drive the tax consequence. But that's just me. I should mention here that one of Josh's colleagues is another tax professor, Leandra Lederman. She has taken an interest in this area and plans to write an article as well. From talking with her I think she does not place as much emphasis on the property analysis as I do. That is, while I am currently thinking that the tax result rests on where you locate property rights (so that if you locate them at the level of the virtual item, then swaps of virtual items become realization events for tax purposes), Leandra takes a different view...I think. But I won't try to speak for her. Knowing that she reads these posts, perhaps she might be persuaded to share her thoughts....? O.k. Leandra, now you've been outed! [wicked grin].
Now, responding to some prior posts (and assuming most readers are not now nor have ever been lawyers or in sympathy with same):
1. Ken, if you have access to a plane and you promise to take me flying in exchange for my promise to pay you $100, that's a contract for services. It's no different than if you promise to sell me a plane you own and I promise to pay you $100. That's a contract, too. Either way, we might make the contract by a handshake or we might reduce it to writing. In the writing we might put down all sorts of collateral agreements (like what happens if I get sick and puke in the plane or what kind of plane you will give me a ride in). Both common law and statutes supply default terms for us to cover most questions if we don't have the time or energy to be more specific than a handshake. But it's still a contract.
2. If you perform the contract for plane rides, then that is a sale of a service and will be treated as such for tax purposes. You will have gross income of $100. If you perform the contract to sell the plane that is a sale of a good and will be treated as such for tax purposes. Now, however, the tax result is that you have gross income only so far as the $100 exceeds your basis in the plane, which is basically what it cost you to buy it.
3. Both contracts are also property, however. That is, if you take me for the plane ride and I fail to pay you the $100, I can sue you for breach of contract. Same if you build me the airplane and I fail to pay. Either way, you have an action at law for the breach. That right to sue on the contract is a species of property called a chose in action. Instead of suing me, you might decide to SELL your right to sue me. You can do that. In fact, I have friends who make their living buying just such choses in action and then collecting on them. They are called collection attorneys.
4. Jeff raises an excellent point about bank accounts. Yep, those are just contracts. It's not actual coins or dollar bills (except if you keep same in a safe deposit box). It's just a virtual account of what the bank owes you. Your bank statement is a description of what you have the right to demand from the bank. So if you have $100 "in the bank" that is to say that you just have the right to demand the bank pay you $100 and if the bank fails to pay, then you have an action at law. Yep, that's another chose in action. Yep, you can sell that sucker to a collection attorney or agency (although it's usually the banks that sell defaulted mortgages to collection agencies). Retailers sell accounts receivables all the time. Guess why? Acccounts receivables are choses in action.
5. The distinction between the contract-as-a-piece-of-property and contract-as-what-you-get can sometimes be really important. For example, in real estate, you might promise to sell me your house and I might promise to pay you $100 for it. Since houses are expensive, folks generally sign long complex agreements (which, despite Josh's probable protestations, are NOT freely negotiable but entail huge transaction costs and are, IMHO, excellent examples of market failure, but that's a soapbox I'll avoid in this post).
Once you perform under the contract, it's a sale of property. But the contract itself is also a piece of property that can be sold (absent a clause in the contract or rule under state law). But once you close the deal, the promises contained in the contract are merged into the deed transfering title. The "closing" is when the parties perform under the contract: you hand me the piece of paper that transfers title to the property and I hand you the money. Since everyone borrows to buy a house, the "closing" actually represents the performance of two conracts: the contract to sell the house and the contract to loan money. But the point is that the "closing" is the moment when the contract is performed and the property is transferred.
So after the closing I cannot sue under the contract (again, absent a special provision in the conract that provides for the obligation to survive closing). The chose in action is gone.
6. Jeff is absolutely right----if I am reading him correctly---that different rights can be thought of as "property" rights. The legal concept of property is really a bunch of rights with respect to an object (also called "res" (for those who like their Latin pure) or "chose" (for those who prefer the Latin filtered through medieval french). Not all of this bunch of legal rights need be present for an object to be property. As the Supreme Court explained in a recent opinion bringing back into existence a federal common law of property: "A common idiom describes property as a "bundle of sticks" -- a collection of individual rights which, in certain combinations, constitute property. See B. Cardozo, Paradoxes of Legal Science 129 (1928) (reprint 2000); see also Dickman v. Commissioner, 465 U.S. 330, 336, 79 L. Ed. 2d 343, 104 S. Ct. 1086 (1984). State law determines only which sticks are in a person's bundle. Whether those sticks qualify as "property" for purposes of the federal tax lien statute is a question of federal law." This quote is from United States v. Craft, 535 U.S. 274 (2003). That opinion gives a really good description of what are the different sticks that constitute the bundle.
The most important sticks in the bundle are the right to use or possess the object, the right to exclude third parties from using or possessing it, and the right to sell it.
Thinking of it that way, I don't see a virtual object as property. It's not a spoon. One can possess it. One cannot exclude others from possessing it. At most, one has a "right" to use it. But that right does not inhere in the virtual object or in the computer code that produces it. Neither are a contract. The right inheres in the account contract---the EULA or TOS. It is the EULA or TOS that constitutes the relevant property interest for tax purposes because that is the contract whose breach gives rise to a cause of action. Thus, it is the scope of the SL contract obligations that Marc Bragg is testing in Pa. Unless the court gets very confused, Marc Bragg is not suing for trespass on his virtual land. He cannot do that. His access and others access to SL items is governed by the EULA and TOS.
Sorry for the longish post. I guess I'm kinda writing my article in various posts. This is good for me. As those of you who attended the State of Play conference saw, I'm the type of learner who learns out loud. Very annoying to some, I'm sure, and to those I apologize and suggest that you just think of me as deformed: I cannot think things through in my own mind silently. It's a congenital defect (you should have heard my family around the dinner table when I was growing up). So pity me. ...send me money for a cure.
Cheers, -bryan
Posted by: Bryan Camp | Dec 15, 2006 at 13:06
@Bryan: If that cure ever arrives, return it to sender. This is great stuff. I learn an enormous amount from your comments, and I greatly enjoyed them and your presentation in NYC as well.
Posted by: Thomas Malaby | Dec 15, 2006 at 13:18
Bryan, I realise I'm recapitulating, but:
Are not EULA's liscences, not contacts and hence are bound by not contract law, but copyright? This entirely changes the legal battlefield they are fought over.
(AUP's and TOS's are certainly liscences rather than contracts, for example)
Regardless, even if you're entirely correct...I can't understand why the "no" defence is soley relied on, since Judges may not see it your way.
Posted by: Andrew Crystall | Dec 15, 2006 at 13:29
To Andrew: You are right, I think, to say that the battle is over what legal rules should apply to the EULAs and TOS. But not because there is debate about whether they are contracts.
Licenses are contracts. The legal battles have not been over whether software licenses are contracts or not, but over the scope of their operation. That is, the fight has been whether the contract is one for a license of a copyright or the sale of a copy. See excellent discussions in: Davidson v. Internet Gateway 334 F. Supp. 2d 1164 (E.D. Mo. 2004)(finding that EULA used by Blizzard for Battle.net was true license and so creation of an emulator violated the owner's copyright); Softman Products v. Adobe Systems, 171 F. Supp. 2d 1075 (C.D. Cal. 2001) (finding that EULA used by Adobe was sale not license and so first sale rule applied and Softman's purchase of bundled software and then resale of unbundled components did not violate Adobe's copyright).
A similar battle occurs in the area of leasing. Whether or not a document purporting to be a lease is really a lease or a sale, it's still a contract. So if I "lease" you a fire detection system custom built for your store and there is no provision in the conract for how the heck I'm supposed to get the "leased" property back at the end of the "lease" term, then that looks like a sale not a lease. But it's still a contract.
In both cases (licenses v. sales, and leases v. sales) different legal rules (including different tax rules) apply depending on how one characterizes the conract. So that is why I say: while the decision on what legal rules apply turns on the nature of the EULA and/or TOS, it does not turn on whether these documents are contracts or something else.
And, to bring it back to the thread, if it's a contract, the rights under the contract property.
Virtual items are (at least as far as I can tell) entirely dependent on the virtual context in which they exist for their value. The virtual context in which they exist is in turn entirely dependent on the terms of the EULA or TOS. Accordingly, I do not locate property rights at the level of the virtual item, but only at the level of the account covered by the EULA. (Damn but I love syllogisms! They make you sound so smart, even when they have more holes than a prairie dog town (to use a West Texas metaphor)).
Cheers, -bryan
Posted by: Bryan Camp | Dec 15, 2006 at 16:02
What is (are) the substantive legal difference(s), if any, between the "possessing" and "using" those "things"?
How do I not have the ability to alienate those "things," whether by tribute, bazaar, or gift? Certainly, a developer could implement (i.e. code) different alienability schemes.
It seems to me that the "property" nature of these virtual "things" does indeed inhere in the code. The EULA governs a participant's access to that particular nature.
In other words, if the code doesn't provide for exclusivity or alienability of these "things," no amount of contractual heavy lifting (e.g. the EULA) is going to provide for exclusivity or alienability. Therefore, it seems strange to me to locate in the EULA a "property" interest in such "things."
Jeff
Posted by: Jeff Cole | Dec 15, 2006 at 16:55
Hi Jeff, excellent point. I quite agree with you that the right to use a virtual item inheres in the "Code" writ large, as in the coding for the entire game. I did not mean to reference the entire coding of the game. Allow me to refine my earlier statement this way, which may moves it towards your point:
"Thinking of it that way, I don't see a virtual object as property. It's not a spoon. One can cannot [yep, it was a sic---I'm a sic man] possess it. One cannot exclude others from possessing it. At most, one has a 'right' to use it. But that right does not inhere in the virtual object or in those few lines of computer code that produce the picture of it on your screen or its representation in your avatar's hand or swag bag or [insert proper term here]. Instead, that right inheres in the computer code that governs the rules of the game and a player's rights as to that code are governed by the EULA or TOS."
Try that on. Does that address your point? Hell, does it make sense? Anyone else?
Cheers, -bryan
Posted by: Bryan Camp | Dec 15, 2006 at 17:54
Bryan, it makes sense, but as a programmer I'd say that the player can never know if an "item" exists or if his non-existing character "possesses" it. It might be an illusion, you might not hold a sword, but a shapeshifting monster, the sword might turn into a time-bomb curse when you hand it to another player, the "item" might be wiped out by a bug etc etc. That current designs boringly mimic physical spaces doesn't say anything about the possible designs.
Sure, devs might grant the player rights to sell these illusions to other players (though, do you really need the permission to sell an illusion?) or that the functionality of the system is going to work in a particular way. In reality most developers will make sure that their EULA/TOS say this: "you have no rights whatsoever". Unless they sell trading cards...
If players want rights they have to look beyond the EULA/TOS and to the legislators and ask them to make sure that the TOS doesn't go to far? Can you forbid players to chat in a particular way, to have cybersex in private, to charge for it?
How far down the nazi-road can developers legally go?
Posted by: Ola Fosheim Grøstad | Dec 15, 2006 at 18:17
Andrew,
about " Harmonising IP law "; you may dream on;also i may dream about globalisation and about the United Nations Organisation and its goals;until then , a Company is selling " something " to me , it makes profits , and the reality looks like this : that Company is doing acts of commerce above ( or beyond ) any commerce laws.IMO, Ola's post point to the problem's core;a sollution ? Let start with this one : you sell a game , a leisure ? Ok, put it on a CD or sell the " on line time " on subscription basis.No problems anymore, there already are the laws regulating this.You have " outsiders " from -let say- " Umumbatunga " aggressioning your market with undercovered Casinos online and such stuff ? Ban . Oh, maybe you wanna have a 3D site , for interractions between programmers , a work-field ....then that's another business and you also already have laws for it. From the very first momment when you call your Online Casino , or your E-Bay , as VWs,your goals are to act on the grey area of laws , to avoid taxation for your real activity and to avoid liability for your misconduct as an economic entity. Its not rocket science : many of the the so-called VWs are just this : a mixture of covered Casinos , illegal Banking activities,money laundering and much more shady businesses. The ammount of unregulated cash flow thru these " businesses " explain the Govt's and lawmakers's " lazyness ".
We should learn from China and Korea.
But my guess is that there is too much easy money involved,and everybody is profiting from it , except , ofcourse, the paying customer. I'm sure the VWs " makers " made a nice illegal profit; the same did the Nigerian-type scammers and con-artists;i dont expect the govt to protect my rights in such matters,but i expect the gamers to awake;this sounds like a good start to me : stop paying for a service/product/VW when the seller is telling you : " we reserve the right to take your money and to run away with them ".
Posted by: Amarilla | Dec 15, 2006 at 20:33
Bryan Camp, "liscences are contracts"
...Not everywhere. In the UK, there is a difference in that you cannot sign certain things away in a liscence (with no 2-way/negociation - that is the key difference as I understand it) you can in a contract. And things like the value of your time, you plain cannot sign away.
(Of course, we don't have the "is it an agreement at all" battle, ANY agreement is valid under UK law (except for selling properties). The probem is proving it. And if you pressed accept then you HAVE made the agreement...)
Thing is, the entire "you do not own this" model is falling apart in online music at the moment. This should be a really, really big warning sign. The games industry is strangely conservative on many issues.
Amarilla, "about " Harmonising IP law "; you may dream on;"
I never said it was my goal. Or that I in any way supported it. I never said otherwise, either. This is deliberate.
Posted by: Andrew Crystall | Dec 15, 2006 at 22:38
Andrew,i blame myself for the wrong use of the word " you ". It was meant merely as a " one ", and i have no excuse for my mistake. The fact that i'm not a native english speaker is not one.
I find Terranova Blogs to be the most informative and reasonable " place " where one can gather the fruits of the academic debate from.I'm far from trying to deny the professionalism of such intelligent posters as yourself.While i hope that my posts could be usefull to the discussion, at least as " bad examples " , i'm still waiting for some valid answers from your high expertise level of knowledges and intuitions. Thank you :-) :P
Posted by: Amarilla | Dec 16, 2006 at 06:14
Um, I surely am going to rant about open source all I like within the SL context because of the despicable behaviour of the tribe promoting it in that context. Those are the terms of reference for the discussion, not the whole Internet and all of open source -- but while I was once neutral and supporting of open source, now I'm not, due to the immorality of the gang in SL.
Re: Andrew: "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?
Oh, I have a simple objection to that: "no taxation without representation". We do not have a government; we do not have separation of powers; there would be only an abusive executive authority doing the taxing - and that executive authority already drains us dry with tier fees on land anyway.
>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."
Oh, that's silly. RL democratic countries do a lot of planning all over the place. They just don't have the ancient central totalitarian control of your favourite commie countries. There's probably more planning that gets done in democratic societies in corporations and organizations, it just doesn't get done by a centralized force. What you're written here is truly sectarian and limited. There's no "suicide" in democratic countries; the "suicides" we've seen are in the communist countries, many of which have collapsed as systems in the last 25 years.
Posted by: Prokofy Neva | Dec 17, 2006 at 02:16
Cmon Prokofy ! :-) Not the RL democratic countries are doing the planning, but the Corporations in charge.See the polls :-) Corporation's interrests and acts are divergent and many times even opposite to each other. They only cooperate when they have a common peculiar interrest, and that's not the society's wealth or the democracy, but only at a 2nd or 3rd stage.
While China and Korea protects the customer, the consummer, the gamer, the " Haliburton-style " of leadership promote and protect the Corporations .
While China and Koreea seems to be concerned for a healthy economical and social relationship related to VWs and MMORPGs, the corporate style are very far from this, thinking : " bleh,so what if if we ruin the concept and the playrs-base's trust , as long as our wallets are fat....tomorrow we gonna call it Metaverse , then Ultraverse. " That's killing the Golden Goose :-)
But i totally agree you on the taxation part.And on " SL gang " as well ( as bad ? ). After a Corporate drains us dry , they shut down the server and vanish with the cash. Both in VW and in RL. That's the difference : in China and Koreea they can't;or, is much much harder.
Posted by: Amarilla | Dec 17, 2006 at 10:03
Prokofy Neva,
"Oh, I have a simple objection to that: "no taxation without representation". "
You can vote in your countries elections, can't you? So whats you...oh, you think because its on the internet it's special? No, its not. It WILL be taxed, one way or another. Let's pick the sane way.
"RL democratic countries do a lot of planning all over the place. They just don't have the ancient central totalitarian control of your favourite commie countries."
I'm not a communist, and I dislike communism. (Having, y'know, actually seen communism in action on an Isralie Kibbutz). But point me to the long-range planing... what I see from especially America, is "gimmie".
Yes, it's more stable than trying to run your entire goverment on communism. But not much, as we're now seeing.
Posted by: Andrew Crystall | Dec 18, 2006 at 08:29
Bryan:
How does the code in EQ1, for example, not provide me, via my 'chanter, legally to possess the "things" in its inventory and exclude other's from possessing those "things"?
Also, to the extent an EULA prohibits RMT transactions, a seller cannot lawfully transfer through such a transaction her contractual right to access a "thing."
It seems to me that you misplace the property right in a "thing" by locating it in the license to play. Certainly, there is a property right in the license and that license property right can govern the "thing" property right. But ultimately, it is the underlying code that realizes (or doesn't) any property right in "things" (pointer, database entry, whatever). And, any such property right inheres in that "thing" (pointer, database entry, or whatever).
Jeff
Posted by: Jeff Cole | Dec 18, 2006 at 11:20
Douglas Thomas said, "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't 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?"
I completely agree. I don't understand why this is even an argument.
Posted by: Theo | Dec 18, 2006 at 12:11
Theo, this is what you are missing : i made a game -call it MMORPG, VW, whatever- and my players are engaged in RMT,they make profit using my platform and i want my share . For this , i need laws to state my ownership and rights , so i could become able either to ask Ebay to pay me a fee, or to enforce the player to use only my own Ebay. From the player's PoV, you are right,there is nothing more to discuss about; but from the dveloper's PoV , it's different;it's about accountability, liability, taxation and much more.
The main problem and concern seems to be : how could we, the devs, spend less , earn more , but keep the players happy and willing to pay , and also how could we avoid the tax-man and Bragg-type cases,while keeping our "God" powers and lack of RL responsibility , at the same time.We have the press helping a lot,also we have intelligent professionals working hard to find a way to accomplish these goals. Then we have institutions like Universities , also private research rich groups, willing to pay a part of the expenses. At stakes being informations, money and the power of influence.And a cheap field of scientific research on human interractions and not only. Well, it is cheap as long as the gamers keep paying their share of expenses. Some MMORPGs/VWs ponder the expenses on the payerbase.Some are just that, games.Some are sponsored research fields. Some are plain scammeries. What can you , as gamer, do about it ?
Well, you can have fun playing the game.Or you can start a business inside the game/MMORPG/VW; wich i dont advice anybody to do, until the laws , regulations and rules are very clear stated. It's not the case yet.
Posted by: Amarilla | Dec 19, 2006 at 22:54
"...i made a game -call it MMORPG, VW, whatever- and my players are engaged in RMT,they make profit using my platform and i want my share..."
I don't think I'm missing anything at all. You WANTING a share doesn't mean you should be entitled to one, regardless of whether or not your players are engaged in RMT. You want more money? Charge a higher subscription fee for your game, or get in on RMT yourself by offering gear or stat boosts. As the developer, you can offer something other RMT's can't: a guarantee. Item was deleted or nerfed? No problem with your data records and exchange policy. Try getting that from the other guy. Instead of trying to figure out how to squeeze players out of more money for nothing, try offering a service that they perceive as having value.
Posted by: Theo | Dec 20, 2006 at 10:32
"...entitled " ?! I dont need this , in order to
" play my game ". I'm Virtual. You dont have laws for me.I'm global. Im Metaverse. Sue me.
Posted by: Amarilla | Dec 20, 2006 at 15:53