US Congress launches probe into virtual economies

If you're going to claim income made in SL.... then you can also claim every USD you spend in SL as a writeoff. You could claim your monthly membership, tier fees, USD spent to buy lindens, and any other USD related expenses. ... so it doesn't matter if you lose inventory items.

Doubledown, you've made a good point there. I say we should welcome the taxman to SL with open arms and start working on our tax deductions. They could be even more profitable than running a business in SL

Someone who KNOWS how to Please a Member of Congress.

ROFL

Angel.

That to be honest is my current viewpoint.

I agree the law is not clear or even non-existent on profits, goods, and services within Second Life, but once you bring it back into first life that is a different story.

It also brings up the issue of emanate domain of which I have mentioned before

Regards

John

Exactly right, In world there isnt a taxable basis for anything, IT IS when you remove your L's back into the world.

I've said it before, and I'll say it again. I think this interpretation is incorrect.

Please explain to me the difference between exchanging digital art by email and exchanging it through our avatars. The former is a taxable event. Why then should the latter not be?

Ricky I think it comes back to the thread header link via Reuters

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

The point is if there is no taxation, there is no political representation and therefore logically no jurisdiction. That goes right back to my comment about emanate domain.

"Where" am I when my avatar logs into Second Life?

I know my home is in The Independent Kingdom of Caledon, but others here may be mainland residents, or subjects of Anshe Chung, or for that matter a Gorean warrior.

My own opinion is that the law on domain and taxation has yet to be clarified for virtual worlds.

Finally getting back to emanate domain have a look through this link, a bit thought provoking given the context of the Reuters article.

http://en.wikipedia.org/wiki/Sealand

Where are you when you log in to SL? You're in your living room. Anything about being in "Dreamland" or "Gor" or "the Kingdom of Caledon" is pure nonsense. If I use my terminal at home to log in to a computer in Hawaii via SSH, I'm not going to get a tan.

As much as the Second life PR machine likes to crow about this being "a new country", it isn't. It's a set of networked machines residing in a server farm in San Francisco.

By participating in the SL economy, you are transferring economic value between yourself and others. You still haven't attempted to convince me that there is any meaningful difference between exchanging digital art by email and exchanging it through our avatars. As I said previously, ihe former is a taxable event. Why then should the latter not be?

That exactly it. I am participating in the Second Life economy. See the Reuters link Ricky.

So therefore as a UK subject how therefore am I to be taxed on Second Life earnings WITHIN Second Life?

Second Life is a virtual world, it is not the UK or for that matter the USA and that is a big difference.

I agree that when I remit funds from Second Life into the UK I will need to account for them to the UK tax authorities. I cannot pay my UK income tax in Linden dollars (although I wish I could on a 1:1 basis this year)

And Linden dollars are not legal tender in the UK, although I accept (as most of us do) they do have fungible value. But Linden does not guarantee that fungible value either.

You see what I mean, I am not hair splitting

Regards

John

you should be taxed like this:

Calculate the amount you've made today in L$. Convert to equivalent GBP using today's average exchange rate. Add that to your total GBP income and pay taxes on it. If you use L$ to pay rent, upload charges, etc., then convert that to equivalent GBP and use that as a deduction.

You can't pay your UK income tax using USD either. Does that mean if you are paid for a service in USD (also not legal tender in the UK), you don't have to pay taxes on it?

And, you've still not answered the point of how exchanging digital art by email (taxable event) is fundamentally different from exchanging it in SL.

In Canada, if your total annual sales (including exports) exceed Cdn$ 30,000 you must register with GST/HST. . I'm not sure what the rules are for state taxes.

Perhaps the problem here might not be so much virtual versus non virtual but knowing the originating location of the purchaser.

As for income tax, honestly, I wouldn't be to concerned about that. Who in their right mind would rather leave all their money in L$ rather than pay taxes on it?

It's very different. The people involved in that kind of exchange are using real and easily taxable money.

Not if you send me a digital image, and I send you a digital image of equivalent value. In that case no money has changed hands, yet the transaction is taxable at the fair market value of the artwork.

Care to try again? What is the difference between trading digital art over email and trading it be avatar-to-avatar trade that would make the latter transaction not taxable, given that the former is?

Wow get off the issue already, it is rated up there with the US postal serv. charging for emails sent.....

The difference is one of ease.

It's much easier to tax some things after they've been sold for real money. I'm certain the IRS doesn't really want to tear off a piece of your Mona Lisa painting.

The L$ can be taxed after it has been sold for real money.

In future, if Second Life becomes more popular and its residents even more successful, then the IRS will ask Linden Lab to notify them of anybody that earns above a certain amount in L$. The IRS will then check the income tax paid by those individuals.

Paypal is forced to do the same thing.

That doesn't answer the question though.

As I said before, the transfer of digital goods is taxable if it is done over email. No real money involved in the transaction. You seem to be claiming that doing the same thing within the confines of SL is somehow different and should be exempt from taxes.

In fact, I would argue it is easier for users to properly value their income, as they have L$ they can use for tracking sales and accounting purposes, rather than having to guess what the fair market value of the email-traded digital artwork is.

Remember- The Goverment is your Friend. The Goverment says you must be happy, Citizen. Happiness is Mandatory!!

Heh, if they were to actually consider taxing "virtual assets" I think we'd see a different SL. One that's a total blank slate. Inventories would be deleted, etc.

Also consider, these "politicians" also think of the Internet as "a series of Tubes". We're not talking the most Tech Savvy people here.

I too would rather see something done about more pressing problems than some guy in his underwear making "pretty pictures" in Photoshop.

And as someone mentioned previously, it could be based on an annual or monthly income basis. For instance, where I'm at, the local small business laws state that if I make $600 or more a month with a home-based business, then I have to pay taxes on it.

It isn't exempt. But it is different. It's much harder to tax.

Also, the IRS wont force you to sell something of value. But when you do sell it, they'll then want to know about it. The L$ has value, but the IRS wont force people to sell it.




It isn't easy viewing the L$ account history. It is much easier to deal with income/ real money. Either by viewing paypal or adding the numbers together on your collection of checks from Linden Lab.


Let it go, Ricky!

I think you're missing the point. The traded by email vs traded through SL examples are equivalent transactions, and should be taxed equivalently. In each case, we're exchanging one piece of digital artwork for another, with no cash changing hands. No real money involved. Simply the trade of two digital images. The exchange of L$ is relevant only in that you have them to act as bookkeeping chits, which simply makes tallying taxes owed easier. You're trying to say that our artwork-for-artwork transaction is taxable if done over email, but not taxable if done through SL. Seriously, I will let this thread die if you can just explain to me why you think this should be the case.

You're not being forced to sell something of value, you're being encouraged to accurately report the value of the economic transaction that has already taken place. That is, the transfer of your digital art for my digital art.

Ricky the key imho is again fungible value.

Yes if I buy something from you, trade shares etc and pay for it in sterling that’s both fungible and legal tender. If you pay me for something in US dollars that again in the USA is both fungible and legal tender.

If I buy something from you and pay for it in US dollars for example in sl (land rent is one example as some private Estate owners will only take US dollars for rent I agree that that is fungible, legal tender and reportable.

If i complete the same transaction in Linden dollars I agree that is fungible (while supported by its residents) but it is not legal tender. Therefore until I remit those Lindens into dollars and/or sterling no legal taxable outside world transaction has occurred imho.

But I will not choose to pay tax on something that is not TANGIBLE until it becomes so. The Linden dollar is fungible, but not tangible nor is it legal tender. The only way to satisfy all three criteria is to take the money out of sl which was my orginal view

Finally I can see that this "may" not be entirely the case if you consider money laundering and other non legal activities, if there was the intention to evade paying rightful tax rather than choosing to remit funds when appropriate for your circumstances. But that is a different issue, I think by openly debating this subject here we are all trying to see our way forward with law in the best way we all can. Even the US Congress cannot decide at present!!

Just my own opinion, I will let others have a go now.

Regards

John

I am not saying that it is not taxable. I am saying that it is not easy to tax.

My view is that the IRS wont tax the L$ directly. Which is what alot of people seem to be wondering about.

I think if you really look at the Linden Policy on L is there can be no tax. L is not money, it has no real value and Linden Labs makes no guaranty of value of L. L from what they say is a license to use intellectual property. They made this statement after the gambling law was passed. If L was thought of as money then all the casinos in SL are breaking the law that was passed. This is a quote by Ginsu Linden
“Linden Dollars are not money, they are neither funds nor credit for funds. Linden Dollars represent a limited license right to use a feature of the simulated environment. Linden Lab does not offer any right of redemption for any sum of money, or any other guarantee of monetary value, for Linden Dollars.”
You can read the actual article at http://secondlife.com/knowledgebase/article.php?id=291
So if this is case how can they charge us a tax? Also if you think about it, if they where able to charge a tax on in world profits then they will have to offer a tax deduction on in world loss such as if I buy a sim and have a club on it and I don’t make money then I should be able to deduct the cost of the sim and the cost of running the club. I can understand them charging a income tax when you convert the L to real currency but not before.

I don't know where to start pointing everything that's wrong with this post.