US Congress launches probe into virtual economies

Have you guys seen this?

http://secondlife.reuters.com/stories/2006/10/15/us-congress-launchs-probe-into-virtual-economies/

I understand paying taxes for when you sell your Linden Dollars for real world cash, but if I'm reading this right, they want us to pay taxes for the actual Linden Dollars we make. Wtf?

Um.. is this where we all begin to chant "Lindens have no value"?

(Laughing) Tell that to Anshe Chung, she didn't make "Business Week" by stockpiling Paperclips.

Angel.

Income is income. When you cash out L$ and convert it to real currency, it's taxable income just like from any other hobby or small business. We already have laws that cover this stuff. If they're going to try to consider virtual assets that haven't been converted to real world currency as real taxable assets then they'd be taxing us twice, because once it's cashed out the income received is taxed.

If any members of Congress are reading this, WTF is wrong with you people? How about doing something about healthcare, poverty, the minimum wage, or any of the other millions of real problems facing our country instead of wasting time and taxpayer money on ridiculous non-issues. We're already taxed!

election year people. Call your congressperson and tell them if they vote for the insane proposal, you won't vote for them. Use Thomas.gov (I think).

I totally agree.

I can understand them trying to go after people who make money in SL but don't report in their taxes, but making us pay taxes for virtual dollars and land is rediculous.

Wonder if they're going to tax Chuck E. Cheese for use of their arcade tokens as well. It's the same damn thing!

Mr. Miller seems to have too much time on his hands. This really doesn't seem as complicated as he is making it out to be. Basically when you make money you report it on your taxes. Doesn't matter where it comes from. As far as capital gains on virtual assets goes, I don't see that ever happening. What if SL shuts down tomorrow? Do you think I will be able to file for a tax credit because I lost all those assets and my business?

And he is talking about WoW as if that was a virtual economy where you can cash out. Last time I looked that was against ToS. Won't a few million parents be surprised when they get a $1,000 tax bill on their little Bobby's bank full of resistance gear and auction house proceeds.

Is this new Reuters group reporting news or making it? Has this high profile news group just focused a whole new group of bureaucrats on SL?

Actually, Chip, virtual income should be taxed regardless of whether it's converted into US$ or not. It is the equivalent of barter income (e.g. you're trading your photoshop skills for storage space on LL's servers, using a "chit" as an intermediary), which is already taxable at the fair market rate.

They wouldn't be taxing you twice, they would be taxing you once for your *total* income, instead on only getting the taxes due on the part you choose to declare. You would *not* be taxed twice. That's just a straw man.

And, honestly, how can your congress do anything about healthcare, poverty, the minimum wage, or any of the other millions of real problems if they're losing millions of dollars due to people evading the taxes due on their income?

WOW put down the CRACK PIPE! The paranoia is getting out of hand.

What he said

FYI, this story is officially mainstream:

http://news.yahoo.com/s/nm/20061016/wr_nm/life_secondlife_tax_dc;_ylt=AnfPDckb9jw5AtOKBoBLlKsEtbAF;_ylu=X3oDMTBhZDJjOXUyBHNlYwNtdm5ld3M-

By: Adam Pasick

Extra snippet at the end of the story not in that link:

(For more coverage of Second Life, where Reuters is opening a virtual news bureau, go to http://secondlife.reuters.com)

What's next ? Collecting income Tax from Scrooge McDuck ?

I'm sure some people would love to claim SL profits as taxable. I'm one of them due to the breaks you get the more income you get to a certain level with kids or certain dependents.

Alas, the IRS doesn't take downloaded documents from a website!

With taxes, there is also assessment of value.

Income, sure, that's taxable - once you get the USD from the Company, it's pretty solid.

But having $L? It's not like owning money. It's like owning money that could literally vanish tomorrow without a trace, without recourse.

Any fair appraisal would factor that in.

And what about transactions in which no money changes hands? That is already taxed at a "fair" value. If I wash your car in exchange for you cutting my grass, we both need to pay taxes on the market value of the transaction.

The fact that similar exchanges that take place in SL are denominated in a microcurrency just make it that much easier to track the amount of tax you need to pay.

Is this for real? Have the legislators stopped probing their young staffmembers? They are coming to SL? Holy Constitution, Batman! Time to lock up our daughters, and sons too, I hear.

I don't think this site has enough bandwidth to adequately answer that question.

Actually, I don't think ANY site does.

OMG! OMG! We better build a dozen new brothels, and hire a thousand more dancers, strippers and excorts!

I guess I'd better not level up my WoW character too much or I'll enter a higher tax bracket. Tax evasion on virtual assets? I don't think I'm the one setting up straw men here, Ricky.

Wait, should I hurry up and have a prim baby so I can get the extra deduction?

Seriously. Think this through folks.

Of course you are. You said that the IRS would tax you twice on your income. That is a patently false statement and serves only to obfuscate the true situation with claims intend to outrage the reader.

The situation as it exists here is completely separate from a high-level a WoW character. In SL you are contributing your IP to the SL service. You trade a license to use that IP with another user in exchange for tokens, which you can trade with others for cash, other IP rights, or services. How then is the fair market value of those tokens not taxable?

If I were to commission a piece of artwork from you in exchange for cutting your grass we would each have to pay tax on the value of the services rendered. How is this situation different? I know you're a smart guy and must have thought your position through. Please, explain your reasoning and convince me I'm wrong about this.

This isn't gonna turn into another ageplay discussion, is it?

Mari

First of all, we're both arguing on assumptions because we don't know what angle Congress is looking at this from. Second, while barter might be taxed, noone pays taxes on it. Should we be subject to extra enforcement simply because we're operating in a closed system? As an example let's say someone lets you live in their house for free in exchange for you doing the cooking and cleaning. Should you be paying taxes on the fair market rental value ? Perhaps, according to the letter of the law, but no one does.

In the specific case here which falls under retail barter exchange, I'm trading art for services, which would be taxable for the fair market value of what's being bartered (my tier counting as income, and the services LL is receiving as a purchase incurring sales tax), but the services I'm receiving are used to create the art in the first place and can be deducted as a business expense. My original point still stands. These things are already covered by existing tax law.

Not to mention that based on the Economy page, over 50% of business is making less than US$10 per month (Sept: <US$10 - 5236, Total - 10356), which is less than the cost per month.

Therefore over 50% of business is making a loss (for example it is just a hobby, or for fun). That is just the businesses, what about everyone else who just spends money, has a baby (as above), etc.

Can you say tax deductions!

Of course the tax deductions would require that LL provide the exact location of people in the Real World, so that the correct Tax department can be informed.

Remember SL is international, so there would not be just one tax department involved, so what happens when there are conflicts between the different countries tax departments when they try to overreach (of course they will try...).

I would hate to be the Linden that gets landed with this job (also remember that Linden/or Lindens will be required to be multi lingual, not everywhere has English as an official language).