SL income and US taxes

How does the use of a valueless game marker make it easier to determine taxes on a transaction? We've already established that barter cannot take place for goods that do not exist, and that any claim to those goods is relinquished by every user to Linden Labs as soon as they log in. Barter of goods cannot take place by definition. There are no physical goods to barter.

Barter for services can take place, but the fact that bartered services must be defined in terms of a real currency in order to be taxed once again prohibits the use of game markers in such a determination of valuation. Once again, game tokens cannot be worked with as though they were currency, because they have no intrinsic value. Further, the number of game points that can be converted into actual prize cashouts varies hour by hour. There is no standardized basis for exchange, so even if Lindens were a currency - which we've already proven is not the case - the value of the bartered services would fluctuate hour by hour. This makes using Lindens as a valid measure of value impossible in terms of taxation or any other monetary comparison you care to name.

You make the assumption that no conversion to real world goods takes place in the determination of taxation, but you are only partially correct in this. In order to determine the value of the services for the purposes of taxation, that value must be represented in the currency recognized by the government doing the taxation. At that point, the conversion between a bartered service and something of tangible value takes place.

The mere fact that a Linden has no physical counterpart - one may not have a five Linden bill in one's real world wallet - means that it is impossible for it to be used as a currency. Lindens are numbers in a field in a database. And that's all they are.

A comparable assumption would be, say, if I found a Pacman machine that gave me prize tickets that I could exchange for real world goods. I stand at the machine and play Pacman for six hours straight and earn 3,000 points, at the end of which time I stop playing and print out my ticket. Is the ticket money? Of course not. No rational person would claim it was. Could I take this ticket and combine it with currency and pay my rent with it? Of course not. Two months of doing that and I'd be reading an eviction notice taped to my front door.

Could I take my ticket and exchange it for a kewpie doll? At the establishment that featured the Pacman machine, probably so. Could I take that ticket next door and buy anything with it? No, because in order for it to be recognized as a currency, the entire society must accept it as a currency - not just a sliver of a percentage of the society's population.

Game points are not currency.

Speaking theoretically, the Linden has a value. It's traded daily on Lindex, so it can be valuated as a dollar. Therefore, it's not really a game token. It's US currency, just in a different format than a dollar bill.

The IRS could care less (and so could Congress) whether you call it a game token in world or not. Is a poker chip not $5 because it's a poker chip? Of course not. You can't spend the poker chip outside the casino, but when you get ready to leave, and cash out, you have money, and that money is income (unless you lost money, and then you can track your losses to offset your gains).

The point is that §61 covers income "from whatever source derived." Income is merely the increase in your net worth. Theoretically, stocks that appreciate increase your net worth. A stock certificate is not currency. However, when the stock certificate is exchanged, it's value becomes fixed (by the price paid for it) and a taxable exchange occurs. Barter is another great example, it's not currency, but it's damn sure income.

In tax law, it matters not what Linden Labs says in the TOS. What matters is what is income. That result is reached by applying law that has evolved over many decades of people trying to cheat on their taxes. Frequent flyer miles are considered income (although due to compliance issues, they aren't taxed anymore). Technically, under §61, the $5 gift card you get for buying a $25 gift card at TGI Fridays is income. Only because the IRS isn't interested in compliance in these areas, because they are de minimus, do we not have to report them and pay tax.

Having actually discussed the SL issue with some egg-headed tax geek friends of mine, we are of the opinion that a taxable exchange occurs at the time of purchase in Lindens, but, that Linden values would be difficult to fix at the time of sale due to the fluctuation of the Lindex. As a result, for ease of enforcement, the most likely outcome is that Lindens would become taxable when withdrawn, and deductions would only be allowed to the extent of real world contributions to the game. The IRS will not worry about how you made the money in world. Only what went in and what came out.

This is not the position of the IRS, and I can assure you they are considering the logistics of taxing in-world transactions and whether traditional capitalization rules would apply to in world businesses. As more and more RL companies enter SL, these issues will get hashed out.

Here are some interesting ones to consider: can in world escorting take any deductions if sex work is illegal in the US state where the operator lives? What about gambling? Same problem? We can go on and on, but talking about these issues is very important because when the bomb drops (and it will) it's best to be as prepared as possible to avoid any negligence penalties or (please God) taxes!

You can be safe, or be sorry. But don't hide behind that TOS. It's not worth the virtual paper it's printed on with regard to your taxes.

There certainly is much milage in the various arguements posted on this subject, however it is all based on the assumption that just because you maybe wealthy in SL and have a large successful company(s), you still may not create any additional beneift in kind or earnt income in the real world, until you exchange the 'monoply' money into a 'RL usable coinage'. I can't imagine the worlds (and it would have to become a international agreeable venture) for taxation within game. It would only become manageable at the point of exchange into whatever currency.

How many people have started businesses in game and never kept a single record of any transaction? If tax offices tried to make an assessment of everyone who exchanged a single L$, or demanded that every user (current and from the past) provide that information, SL would potentially die tomorrow. How could they possibly cover those accounts that have no identifiable means of identification because they chose to set up an account without account info?

An impossible task!

The only way that any potential Government and or Taxation department could possible enforce any form of taxation has to be at the point of exchange to 'spendable coinage'. If you buy something ingame that has been sourced out of game, the taxtation point is at the point of sale, the same would be true in reverse.

For my money, Governments and other departments within, are probably more interested in the potential for money laundrying!

My point regarding VAT (for us Europeans) export and import duties and excise, could also potentially apply.

Anyone for Monolopy?... bring your accountants with....

What if you spend the tax year abroad, and if the money you made on SL is shared between several avatars who are non-US-citizens?

Exactly my point!

Nigel makes the same errors in logic over and over - he assumes that the appearance or similarity to a monetary transaction makes it real, and nothing could be further from the truth. For example, he cites the use ot Lindex to convert dollars into Lindens as proof that Lindens are currency. One has paid a Linden owned machine to buy game service in the form of extra points. One might as well argue that bus tokens are currency because it is possible to buy them from a machine owned by the bus company.

Repeatedly, Nigel confuses the simulation of economic elements with actual monetary transactions - assumes that objects in the game are owned by anyone other than Linden Labs - assumes that items exist in world that can be bought or sold, when in fact they are mere digital representations of these items, ownable by no one because they do not, in fact, exist. And on this flimsiest of platforms, he builds his argument that trading game elements for game points is some sort of financial transation which can and will be taxed.

Further, he cites impending taxation of virtual economies as a certainty, when in fact only one person in the United States Congress has ever made statements in this regard, to be refuted by another senator. A comittee has supposedly formed, but that's a long way even from a bill for new legislation, let alone a law. Using this as "proof" of his notions that Lindens are a taxable currency directly is nothing more than FUD.

Rest easy, everyone - the taxable moment is at the point of conversion to real currency, just as it's always been - we're already being taxed on this money, the government is already getting its due. Statements to the contrary do service to no one, except possibly to aggrandize the speakers apparent authority in these matters.

Are you trying to claim that if you give me 50,000 bus tokens I don't need to claim that as income? If you really believe that, I don't think you understand the purpose of taxation or indeed how it really works.


When you engage in a transaction in SL, you are offering a service or licensing the use of your IP in exchange for a token representative of value. LL has repeatedly made the statement that "users own the IP rights of whatever they create, which means that, yes, game elements *are* owned by other than Linden Lab. The right to use items that exist in-world is something of value that can be bought and sold. This is trivially true as, (a) people buy SL items for L$, and (b) L$ can be exchanged directly for US$ through LL. Therefore, items puchased for use in SL have nominal US$ value.

You've made mention of "game points" many times. What are these game points other than a representation of the economic value a user has exchanged with others? I build you a house (which takes time and skill and therefore has an economic value), and you give me some of the game points which you have purchased using US$. I've given you a valuable service in exchange for "something". That "something" identically has the same value as the service I've provided you. How much is that worth? It's worth the fair market value for which I could have sold the "something" -- i.e. the price on LindeX. How in the world is that not an economic exchange?


The problem with your arguments is that you're treating SL as somehow "special" and outside the realm of existing law. It is no such thing. Barter transactions have been taxed for ages, and the fact that these trades can now be valued (nearly) exactly simply makes determining taxes owed easier. It doesn't somehow magically transform the transaction into something non-taxable.

I used this example in an earlier post. I give you dental services and you perform accounting work for me. Nothing physical is exchanged, yet that transaction is taxable at fair market value. You seem to be arguing that if I give you dental services in exchange for tokens, then give the tokens back to you in exchange for accounting services, that somehow makes the transaction not taxable. Is that a fair representation of your position?

Your counter example does point out the fact that tokens have a value - but they are not currency themselves. The value of the tokens must still be declared in dollars, not tokens. Again, the taxable moment is when the tokens are converted back into their original purchase value, not in the tokens themselves. The tokens themselves are only worth rides on the bus, unless they're sold.

You are reaching far, far into undefined territory by claiming that the exchange of the right of use of intellectual property for Lindens summarily defines Lindens as currency, and are unfortunately engaging in the same leap of logic as Nigil is - that the appearance of something makes it so by general comparison. You're putting stock in the "truthiness" of the virtual reality experience, just as Nigel has.

You have made some progress in your arguments by ceding the fact that Lindens are not, in fact, currency, in order to attempt to prove your point that barter is the taxable activity - however, a Linden itself is a virtual, not a real, object. Nor is it a service. It is simply a game point, which, if accumulated in quantities, the company whose computers it exists upon will pay out cash prizes against. And at this point, we can be, and are taxed. It is at this point that there is anything to tax, because at this point the transaction exists in actual, real-world currency.

Second Life is a wonderful, amazing digital representation of reality. But it is most certainly not reality, nor are any of the simulated economical components within it. This, above all else, is why exchanges in Lindens themselves are untaxable, and why, to date, no one has successfully prosecuted a suit against Linden Labs for loss of game points. One might as well propone that the IRS has a valid claim to tax one's thoughts or imagination.

There is no impending invasion of the metaverse by the IRS or any other tax agency, simply because the tax situation is already covered. There is quite literally nothing to see here - conjurations of hypothetical taxation based on accumulation of points within on online game pass no test of law, or in fact, common sense.

I have never claimed that L$ are currency. What I have claimed is that they are tokens representative of value. We can determine that fair market value of those tokens, and it is that value that is taxable at the time it is received.

Your interpretation of the bus token example shows your disconnect with the way tax law is structured. The bus tokens *need not be converted to cash* in order to be taxable. Simply receiving the right to take 50,000 bus trips for free would have a cash value of around $100,000. The value of $100,000 is taxable. L$ are exactly the same -- we can determine the cash value of L$300,000 (around $1,000) and that $1,000 is taxable regardless of whether you convert it to cash simply because you have received the economic benefit of having the equivalent of $1,000.

Nobody has successfully prosecuted a claim against LL for lost currency simply because the opportunity cost is such that it's not worthwhile. Even if you hire a bargain lawyer, a suit will cost you several thousands of dollars. The fact of the matter is that nobody has lost enough L$ to make suing LL over lost value worthwhile. Now, if someone had a couple of million L$ evaporate and LL only shook their heads, you can bet you'd see a lawsuit filed, regardless of what the TOS says about "redeemable value".

I agree that the situation of L$ transactions is already covered -- you're simply interpreting it incorrectly. Exchanges within SL are covered by existing barter laws and should be taxable at the point of L$ transfer between users because that is where the economic value is transferred.

Back to the question I posed a couple of posts ago, though. Can you explain your position more clearly on this?
"I used this example in an earlier post. I give you dental services and you perform accounting work for me. Nothing physical is exchanged and no currency is used, yet that transaction is taxable at fair market value. You seem to be arguing that if I give you dental services in exchange for tokens, then give the tokens back to you in exchange for accounting services, that somehow makes the transaction not taxable. Is that a fair representation of your position?"

I see several flaws Kalel's argument (and would like to point out that persona of Nigel Durnan in world is a she).

First, if you actually read American tax law, you will see many cases in which non currency transactions are considered income. Money is income, true. However, non-monetary things are also income. The bus token example is a great one. While no one gave you money, they gave you a thing of value, which was income to you. It's no different if they give you intellectual property. It's still has value and, thus, is income. And, you don't have to convert it to cash to have income. Another example is a stock option. You may not buy the stock, but the option has value (and it can run you into some god awful AMT issues if you aren't paying attention). It's not money, it's never converted to money, but it has value.

Another basic flaw is that what Linden labs says about SL is NOT what the courts will use to determine the issue of income. There are TONS of cases where taxpayers structured complex documents/contracts/trusts/agreements/you name it, calling income something other than income. Google "Son of Boss" and you'll see one such example. The courts tossed them ALL out. While it is true that Linden could pull the plug, it's also true that anyone with a substantial investment in SL could, theoretically, argue a business loss as a result of the plug being pulled. The IRS typically uses substance over form analysis. That's why I say it doesn't matter a HILL OF BEANS what SL calls it, or what you call it, or what I call it. What matters is what the IRS and the courts decide to call it. Take your chances if you wish. My money's on income.

As to the exchange idea, I agree, enforcement would be a nightmare. I don't think the IRS will go there. BUT, from a purely theoretical tax theory point of view (in other words, just being an egg-head about it), the exchange occurs in world at time of sale. Will that be the point at which the value is fixed? Who knows!?! But, theoretically, it could be.

Also, the IRS will probably look to LL to provide the information of US currency going in and out, as much pf a pain as that would be for LL. If LL is cashing people out, it has records, so the IRS would probably require LL to send 1099s to all those receiving distributions. If you are under no obligation to file a US tax return, the 1099 has no import.


As to another point I saw:


US citizens living overseas may or may not be required to file tax returns depending on their particular situation. But, US citizens living abroad MAY have to file. That question depends on your facts. Consult your tax professional.

International companies conducting business within the US may also have to file returns (even if only informational ones) depending on the nature of the business. This raises the interesting question of the situs of the SL business. Is it where the operator is, or where the server is?

Furthermore, international partnerships where one person is a US citizen may also have US tax implications. It's too complicated for me to commit it to memory, but would need some research.

My point, just because you aren't in the US doesn't necessarily mean you don't owe the US tax. It's like the VAT in Europe, there are all sorts of taxes (sales, import/export, use) that we aren't even talking about too much here. The income tax is a mess enough.

Now, as to whether Nigel knows what the IRS is going to do, consider this: Nigel obviously knows a shitload about taxes (Nigel's operator actually has a degree in tax). Nigel's operator doesn't know for sure what the IRS is going to do, but the IRS does not need Congressional permission to do it. Look at Treasury Regulations if you have any doubt. Those aren't passed by Congress yet have force of law. That's because the following appears in most tax statutes: "The Secretary shall prescribe such regulations as he may deem necessary . . . ." 26 U.S.C. § 274(o).

So, my point is the same as it's always been. Keep your records, or take your chances. You're not out anything by keeping records. You could be out alot if you don't.

Fixed to reflect what I assume you meant.

Sorry about that Ricky. I'll fix it too!

Part of the problem with the whole idea is something you brought up, Nigel, which is that Lindens are not uniformly purchased with one currency, from one country. As you rightly point out, one of the major sticking points of internet law is that if a transaction takes place, what country can it be said to take place in? The country where one or the other party at each end of the transaction is sitting? The country where the server that mediates the transaction is sitting? There is no straight answer for this, and to suggest that one has, as a matter of certainty, liability for paying taxes in a country in which one does not live, is just more of the same FUD.

Your "Son of Boss" example is completely irrelevant, as at no time are monies exchanged for play value in a service, which is the lynchpin of our entire discussion. It has nothing to do with the defense of the idea of taxation on the receipt of play value in an online game. In fact, your "HILL OF BEANS" comment actually has much more relevance. You might as well worry about being taxed because you received a hill of beans. Now when you turn around and sell those beans, or try to declare those beans as inventory in your store, now you've assigned some dollar value to the beans and are liable for the tax.

There is no substance over which the form could take precedence, of course, because there simply is no substance. Participants play at their own risk, and may not claim damages of any sort in terms of pure Lindens. It is only at the point where the players take their winnings that any legal test or definition may apply.

I'm certainly not suggesting that it isn't a good idea to keep good records of the monetary transactions between yourself and Linden Labs, however, because no matter what country you're in, money you are given by Linden Labs (in whatever coin of whatever realm you live in) is sure to be taxable. That part of the transaction is, at very least, has a fixed and identifiable location, and takes place in actual currency.

The only thing you have to worry about is where you either receive actual physical goods or services which you declare as having value as measured in dollars. Until and unless a valuation is possible, taxes cannot be, and are not, expected or assessed. This is why stocks and bonds have value - they are defined as having a fixed value in terms of U.S. dollars. The value of the U.S. dollar may fluctuate, but the value of the stock or bond with reference to the U.S. dollar is assigned and fixed. Further, since it has fixed value in terms of U.S. currency and may be bought and sold to anyone, it can be treated as assets. Since Lindens exist only as game points until converted to Lindens, and may be used to buy and sell nothing but game service in a single online game, they cannot be treated as assets.

If you could identify even a single successful legal precedent in prosecution of taxation of virtual currency, you might have an argument. But there has never been one, and unless the Linden suddenly is declared to be legal tender for all debts, public and private (as it says on every dollar bill in your pocket), there never will be.

Kalel, the main points of your argument seem to be a) that Lindens are just game points, and therefore not taxable; and b) that because it hasn't been done it can't be. Also, I've said again and again, I'm only talking about US law. International tax is not my forte.

At one point in time, the Supreme Court said a tax on income could not be imposed. It can be now.

At one point in time, frequent flyer miles (which aren't money) were taxed. They aren't now because of enforcement problems.

I seriously doubt the IRS is going to allow US companies to do business in SL and avoid tax. On this point, we're going to have to agree to disagree.

I've seen too many times people saying, the IRS can't do this, or they can't win that, and then they do it, and they win it. Just like the investors in BOSS, Son of BOSS, and KAPOK, they were told the strategies were solid, and they could avoid tax by doing x, y and z. They are all paying the piper now.

No one knows what will happen until it does. I'll bet you $100 Linden I'm right. But if I win, that $100L will be income to me.

Truce.

If you Really want an Authoratative answer to these questions then do the Following;

As Tax Season is now coming upon us Declare your Income in Lindens under the "Other income" catagory on your IRS/Revenue Canada/Inland Revenue return. OR for better, Faster results, Attempt do deduct your Linden Business Losses from your taxable Income.

The response you get from the IRS/Revenue Canada/Inland Revenue will be your taxation Branches Formal Interpretation on Lindens, and Linden transactions as RL transactions.

I would venture the theory however that an attempt to declare Lindens as Income would get you the Official governmental version of "WTF???" and any attempt to Deduct those Losses from your Taxes will likely get you Autited.

At the Moment Lindens, and Linden Transactions DO have RL Monitary Value, BUT Like Stocks purchased on the Stock Market, thier RL Value is NOT Fixed. I may own for example 500 shares in Kodak (I'm throwing out names and numbers here for reference i neither know nor care what the real current values are). I bought them at $100.00 a share. During the year, thier Value peaks at $500 a share, But Foolish me, I don't sell. then thier Value drops to $125 dollars a share. Now According to Much of the Logic used here I should be on the Hook for Paying taxes on the MAXIMUM value of those shares because My shares made me $400,000 dollars. WRONG. The Only Value i pay Taxes on is the Realized Value. The Money i actually Receive when i Sell those shares (Or receive Cash Dividends upon them) NOT thier supposed Value at any Given time during the year. I can move the Value of the shares about the stock Market, Sell, then use the Money to Buy other stocks, But if those stocks take a Loss, I can write the Loss off against the gains i made Earlier, but in the Final analysis i am ONLY Taxable on the realized profits, and they are Only Judged when the Money is removed from the system.
Generate Lindens Buy, sell, trade within the SL environment but as Long as you LEAVE your Investment within the system it is Not Taxable. It becomes taxable ONLY when it has been Removed from SL and converted into a Real Taxable form, Cash, Because Then, and ONLY then is it's True Monitary Value Established.

Angel.

Angel.

Since many use paypals and mostly untraceable. Taxes and Linden $ are well......
never mind..... As LLabs has said in the past.........You don`t own anything on sl it does not exist. As for monies well paypals shields you away from such evil things as taxes. Some believes.

A question for Ricky. Please take this seriously - it's a very serious, though friendly question.



- Let's presume you are correct, and that $L transactions are taxable.

- Furthermore, that 'services in virtual worlds' are taxable.

So now let's hop over to Lineage II Online.

Jimmy kills 100 orcs (to obtain 10 pieces of coal) in exchange for a bow from Tommy. A very realistic scenario over there, by the way.




Is such a transaction taxable?

At what point are 'game points' still merely 'game points' and not barterable?

At what point is 'playing a cooperative game' different from work?


Ricky, I'd like to know where you personally draw the line. Does the game have to be offline? Do the players have to be children? Does the game have to be ridiculously silly in appearance?

Is there no such thing as a 'game' at all, and the guardians of six year old Jimmy must declare barter payment from seven year old Tommy for Goomba power-ups on their aging treehouse Super-NES?

i think all this would get much simpler if LL moved their servers to an offshore hosting solution.

Might be happens soon since the internet gambling rules that are happening now. Who really knows really.

Then they believe incorrectly. Paypal reported _my_ Second Life income to the tax man. (Fortunately, I'd already declared it all on my tax return!)

The policy might vary from country to country, but where I am, Paypal are legally required to notify the revenue services once you've received a certain (cumulative) amount of cash into your account.

Not really - since taxation occurs when you get actual income, whether the server is offshore or not really has no bearing.

Nonsense, Nigel - you simply can't be taxed on game points, because they're not money, and they're not income, until you sell them. Then the money you get from that is income. If you dig a gold nugget out of the earth, the IRS does not tax you for it. That gold nugget must be converted to cash before there is any income from having gotten the gold nugget, and then it's income.

Any other claims to the contrary are pure, unmitigated, shameless FUD.

Sorry, Kalel, but you are wrong once again.

From the IRS page on "Other Income":
Found property. If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession.

So, your gold nugget is taxable at the fair market value. You'll have to look at the gold spot market and find the current price (you should probably use the closing spot rate on the date the nugget becomes undisputably yours, as in the definition of the Found Property income) to calculate the USD equivalent you must report on your taxes. It's quite clear that these taxes are owed even if you never convert your nugget into cash.

So, if you're wrong about that, isn't it possible you're wrong about your position on virtual asset taxability?

Ah, good parry!

All right, let's see, how do I approach this? In your quotation of the "Other Income" section, it states that the found item or property is taxable at its fair market value. And you could argue that "Market Value" is determined by what people are willing to pay for that item, which is determined in part by activities on the Linden run exchange. So, assuming that what you are actually doing is exchanging one thing of value for another, one might be led to the assumption that Lindens can be personal property, since you're paying for them, and that they have value.

However, you're still making a leap of logic, founding an assumption on an unproven assumption instead of a known fact.

Unfortunately the hole in the argument is still that there is no such thing as a physical object called a Linden, and since there is no object, it cannot be bought or sold in any sense that the IRS recognizes. It is, in essence, a non-binding promise to pay, and agreements like this are not income in any sense. It's still obviously not a currency, as it is not recognized by anyone outside of Linden Labs and its customers as being such, and Linden Labs itself declares them to be of no bound value. Even internet gambling sites do not have game points having intrinsic value - they use account balances in USD to keep track of your winnings (and your losses).

It all comes down to the virtual nature of the materials involved, i.e., that there aren't actually any materials to trade.

What happens a Linden when the grid goes down.

Does it still exist?
- That depends on your definition of existence. A Linden is technically a value in a field in a database, encoded as a magnetic pattern on a hard disk.

Can a magnetic pattern have intrinsic value?
- You would be hard pressed to prove that it does - it is data, a record of a real-world transaction, but not valuable in and of itself.

Can you take your Linden out of the system for safekeeping until the grid comes back up?
- Of course not. The data belongs to the Lindens. You never owned it.

Can you take Lindens and put them in your safe deposit box?
- Of course not - it has no physical substance.

Since they don't physically exist, they can have no intrinsic value and are therefore incapable of qualifying as either property or currency, so they cannot satisfy the requirement of having value in terms of them being taxable. And you can't claim ownership of the magnetic representation of the Linden either, or any of your virtual belongings in SL, because the Terms of Service explain that you don't own them. Linden Labs does. You're just using the stuff while you're online.

All a Linden represents is the right to perform certain activities within the simulation as you see fit, within the confines of an online service, and that's it.

If you can demonstrate that Lindens or anything else in SL can be taken out of the Linden Labs hard disks as a unique, distinct real world object, then you'll have won your argument.

Actually, No, the Gold Nugged would not qualify under this section because it Has Not been lost or abandoned (treasure-trove), It is a resource Naturally Occuring in the Place where it is Located, and would be covered under Other sections of the Tax Act. Most likely under the heading of developement of a natural resource.
If i own Land with Oil on it (And i retain Mineral rights) I am NOT Taxable either on the amount of Oil contained within the Land, Or the amount i Extract and Store, but ONLY that Oil which i Convert for Monitary Return.

Now, had you said "Gold COIN instead of Nugget, THEN the act you Sighted would apply.

Nice Attempt though.

Angel.