Is the free ride over for successful businesses?

Some interesting parts of the terms of service are these:


And Here:


This seems to indicate that even if you have a positive USD balance on your account that LL consider this "data" to be part of the account and not actually owned by you (at least until you cash it out anyway).

This is consistent and further reinforced by testimonies from people whose accounts have been permabanned saying they did not get a refund on their USD balances. If the USD balance amount really belonged to you then LL have no legal right to keep that money from you, however if it is just game data and owned by LL then presumably (at least in their minds) they have to right to keep it if/when they terminate your account.

This would mean you do not own anything until you cash out at which point you are liable for tax on new income.

The (non-)issue of L$ being taxed directly is even less likely due to this part of the TOS:

Of course the IRS may not see it like this and lay down some specific rules about it but I would think until they do due to LL's own wording people are safe to assume that taxation will only start once the USD is actually cashed out.

the thing about sugar is it's really not bad for you until it is processed..
like most things..
the processing is where the harm comes from..with meat and eggs and milk it is sol manila but you don't get that from chickens or the cow it is after they have made it through the processing.
when say you have a sol manila outbreak it is mostly from one place that has not cleaned their machines well..
with sugar and other things it is the being processed for packing and most times takes out the good in the products..

artificial sweeteners and gum have certain things in them that help break down the immune system helping the cancer cells you are born with win the war over your immunity..

if you can get these things before they make it to these processing plants or broken down you get the benefits of them..plus you get it before the tax makers have a chance to tax you on it

Honey is probably the best..local Honey more than anything because it helps with dealing with the local hay fever helping you build up a tolerance to the local pollen in the air..kind of like a flu shot..

ya i just don't see how they can get inside of sl and account us for anything until it's cashout time..
this was a good find in the TOS..
it at least grandfathers past income if they somehow do find a way..

This is both the common sense angle and the position I've always believed is correct. However I guess there could be an argument made that it is income of sorts, but as we don't own the money until we cash out I'm sure that means it shouldn't be taxable whilst residing in our US dollar account.

If you take that view, the problem is that you are essentially recieving your land as a "payment in kind" from Linden Lab.

Certainly if the tax department disagree with this then there is plausible deniability on the residents side saying they were falsely led by LL's TOS on what we owned vs. what they owned.
All in all I cannot seen anyone who is accumulating a L$ or USD account balance to be in danger of having to do anything other than pay a "normal" tax bill if the IRS decide that the situation is different.
More worrying is that you have no right to your USD account balance and it can go poof if LL decides to do that one day.

No, you are accumulating game tokens and exchanging them for the right to use land. Again according to the TOS you do not own any land at all.

Typically, it would be income at the moment that you have the right to cash it out, whether or not you actually cash out at that time.

Now, arguably the wording of the TOS would grant you no right to cash out (since LL doesn't guarantee cashing out), so you wouldn't have to claim it as income until the cash-out finally occurred.

i just don't see outgoing money as being taxed as income ..
how am i going to be taxed for paying for land?
really i am renting server space so it is the price set for the server space..if there was a tax on it to be paid it would have already been paid or i would have an option to put in my tax id number ..i haven't seen one of those in sl yet..

Agreed, that is my reading also.

I would love to pay a lot of TAX.
That would mean I'm earning something more than a pittance.

It doesn't matter, though: the right to use that land for a month has a value of US$195 (or whatever tier you are paying), so if LL let you use land without paying that money, it's a "payment in kind" of US$195. Which is probably not enough for any tax authorities to care, but there we go.

what land would it be that they are giving to use for no tier?
this is where i am getting confused..

When a service provider decides to give you a free month of service since when did you inform the tax department? I would warrant never. You could see them waiving the land fees as an in game reward or bonus for accumulating L$. They have in fact waived tier for some as I recall in the past.

At any rate what they decide to charge you for and what you earn as income are not linked for tax purposes and would be seperate issues.
If anything what would happen is that LL would get slapped for organising this mess and told to make the taxed points clearer, however for what is present and past I doubt there is danger from the IRS about not declaring what you are told you don't even own.

Maybe but if you go down that route then even Linden dollar transactions would fall into the tax category. The IRS report in question says that income is:

"Undeniable accessions to wealth, clearly realized and over which taxpayers have complete dominion"

Which doesn't seem to be the case in either US dollar account format or Linden dollar format. Whether this would hold up in a court case is another matter.

Well past time for another.

I'm up for it.

Count me in

The IRS uses a number of factors to determine if a hobby that generates sales revenue is actually a business and therefore taxable.

These factors include, but are not *necessarily* limited to:
- Do you carry on the hobby in a business-like manner?
- Do you spend considerable time working on the hobby?
- Do you depend on income from your hobby for your livelihood?

If the answer to ANY or all of these question is yes, you're running a business, not carrying on a hobby, and you are responsible for paying taxes on your income.


The majority of the businesses in SL would say yes to at least number two above.

And as someone else said, any and all expenses related to conducting that business are true business expenses and can be written off against the income.

Ummm Lil' not sure anyone is arguing against that. It is the point at which the inworld balances are subject to taxation that is being discussed.
Unless you were just giving out some general info that is and you can then ignore my post.

EDIT: Though this has given me some food for thought. To determine if someone is actually *really* operating a business in a virtual world surely is fraught with problems. In RL there is no question that if you are to all outward appearances running a business that generates income then you would expect to be treated as such but inside a virtual world? I mean how do they determine that you are simply not playing the role of a fantasy business owner?
SL is fantasy based after all as you cannot run your av under your own name except in a few cases.
I know for sure that some people are playing a game and spending all their generated L$ inworld.

Posted after reading the few few posts, when only a few comments had been made and the discussion had not gotten into the details of *when* it becomes income.

Usually I'm very good at reading thru to the end before posting, but not always.

Lol np, actually you did provide some info which I beleive is going to prove thorny for the IRS to determine as per my edit.

Here is one to consider: if they can tax the virtual currency of SL... then they should be willing to accept said currency in payment.

that is where i think we have to be very careful how they decide to word it if the time does come where they get involved inworld.
is it investment income and we cannot pay with investments or is it actual currency.if it's treated as an investment then you would have to pay with currency..

also for using your name in sl i would think all you would have to do is make it a company and us a C=EZ form and any other forms needed.they really can't come at you for reporting more income..i mean they want all income explained..how else do you explain where it is coming from?
you have transaction records to back it up and email confirmation and pretty much anything you would need to say it was a business of yours..

i think the write offs would outweigh the cost by far and get you to zero a lot faster than ever having to pay a tax.

i would like to know how people are filing their income from SL now to compare any changes that may really come from this thing the IRS is wanting..