Stranger than Fiction : Taxing Virtual Worlds

Virtual worlds, including massive multi-player on-line role-playing games (game worlds), such as City of Heroes, Everquest, and World of Warcraft, have become popular sources of entertainment. Game worlds provide scripted contexts for events such as quests. Other virtual worlds, such as Second Life, are unstructured virtual environments that lack specific goals but allow participants to socialize and engage virtually in such activities as shopping or attending a concert. Many of these worlds have become commodified, with millions of dollars of real-world trade in virtual items taking place every year. Most game worlds prohibit these real market transactions, but some worlds actually encourage it. Second Life, for example, grants participants intellectual property rights in their creations. Although it seems intuitively the case that someone who accepts real money for the transfer of a virtual item should be taxed, what about the player who only accumulates items or virtual currency within a virtual world? Is valuable loot acquired in a game taxable, as a prize or award is? And is the profit in a purely in-game trade or sale for virtual currency taxable? This is an important set of questions, given the tax revenues at stake. Although the Internal Revenue Service has not yet attempted to tax transactions within virtual worlds, it is aware of the issue, and there is pressure on the government to determine how to resolve it, given that the economies of some virtual worlds are comparable to those of small countries. The Joint Economic Committee has announced that it is studying the issue. Most people\u27s intuition probably would be that accumulation of assets within a game should not be taxed even though the federal income tax applies even to non-cash accessions to wealth. This Article argues that federal income tax law and policy support that result. Loot drops in game worlds should not be treated as taxable prizes and awards, but rather should be treated like other property that requires effort to obtain, such as fish pulled from the ocean, which is taxed only upon sale. Moreover, in-game trades of virtual items should not be treated as taxable barter. If courts uphold game agreements that purport to provide players with a mere license to use the game, in-game trades do not constitute realization events and thus are not taxable. therwise, tax policy considerations suggest that Congress should provide nonrecognition for these exchanges. By contrast, in virtual worlds that are intentionally commodified, such as Second Life, tax doctrine and policy counsel taxation of even in-world sales for virtual currency, regardless of whether the participant cashes out. However, as in game worlds, participants should not be taxed on purely in-world trades of non-currency items. This approach would allow entertainment value to go untaxed without creating a new tax shelter for virtual commerce

Taxation of Virtual Assets

The development of vast social networks through Massively Multiplayer Online Role-Playing Games has created in-game communities in which virtual assets have real-world values. The question has thus arisen whether such virtual assets are legal subjects of taxation. This iBrief will detail and discuss the various exclusions to taxable income, and analyze their application to the possibility of creating potential tax liability based on in-kind exchanges of virtual assets

Digital play and the actualisation of the consumer imagination

In this article, the authors consider emerging consumer practices in digital virtual spaces. Building on constructions of consumer behavior as both a sense-making activity and a resource for the construction of daydreams, as well as anthropological readings of performance, the authors speculate that many performances during digital play are products of consumer fantasy. The authors develop an interpretation of the relationship between the real and the virtual that is better equipped to understand the movement between consumer daydreams and those practices actualized in the material and now also in digital virtual reality. The authors argue that digital virtual performances present opportunities for liminoid transformations through inversions, speculations, and playfulness acted out in aesthetic dramas. To illustrate, the authors consider specific examples of the theatrical productions available to consumers in digital spaces, highlighting the consumer imagination that feeds them, the performances they produce, and the potential for transformation in consumer-players

The Play\u27s the Thing: A Theory of Taxing Virtual Worlds

This Article looks at the potential tax issues arising from a new life activity: online role-playing games in virtual worlds. Currently, some thirty million people regularly play such games and the number is growing. Exploring the reach of the Tax Code into virtual world transactions not only responds to the potentially practical needs of millions of U.S. taxpayers, it also permits a reevaluation of core principles of income tax as they interplay with life activities in the context of twenty-first century American culture. This Article\u27s central thesis is that while player activity in virtual worlds undoubtedly produces measurable economic value to the player, player activity that occurs solely within the online virtual world is not gross income under the law. The Article argues for a cash out rule. Players whose added wealth consists solely in units of play should not be taxed unless and until they convert those units into cash or property that is something other than a unit of play. Conversely, when the play ceases, taxation begins. The resulting line-drawing difficulties have nothing to do with player intent nor with fun and games. Instead, the issue presented is as old as the Tax Code itself: at what point does economic gain become legal gain? The new context of virtual worlds allows for a renewed exploration of how and why the legal concept of income differs, and indeed must differ, from the economic concept

TAXING VIRTUAL WORLDS: CAN THE IRS PWN YOU?

This article examines whether the transactions between players of online virtual world games can give rise to taxable events. It also compares two earlier articles on the same topic, and argues that the intellectually pure conclusion is that every transaction in virtual worlds creates a taxable event. While the article concludes that the events are taxable, it argues that similar to frequent flier miles, the income from a virtual transaction should not be taxed until it is converted to real world currency. The IRS has implemented Section 6050W designed to require companies like PayPal to report the transactions of their biggest customers. The rules are applicable to virtual world players, but do not perform a sufficient function of ensuring reporting compliance because the number of transactions required to trigger a report are far too high

Shared task proposal: Instruction giving in virtual worlds

This paper reports on the results of the working group “Virtual Environ-ments ” at the Workshop on Shared Tasks and Comparative Evaluation for NLG. This working group discussed the use of virtual environments as a platform for NLG evaluation, and more specifically of the generation of in

Virtual Assets, Real Tax: The Capital Gains/Ordinary Income Distinction in Virtual Worlds

A great deal of economic activity now occurs in virtual worlds, raising questions about the proper taxation of income generated by virtual world activity. This Note focuses on the characterization of such income, that is, whether income earned in virtual worlds should be classified as ordinary income or capital gains. Generally, the character of income is determined by the activity which generated the income. In the context of virtual worlds, the issue is whether character should be determined by the nature of the user's transactions within the world. As argued below, there is no good conceptual justification for treating economic activity in virtual worlds differently from analogous activity that occurs in the real world. However, applying the capital gains-ordinary income distinction to virtual worlds would not be administratively feasible. Thus, for the reasons set forth in this Note, the best possible tax regime is to classify all income earned in virtual worlds as ordinary income

It\u27s just a game, or is it? Real money, real income, and real taxes in virtual worlds

Virtual worlds like Second Life offer players opportunities to earn real-world income through their activities in the game. It will not be long before governments begin to establish policies and regulations regarding the income generated by players of these game environments. This paper examines the issue of taxes in virtual world games. Two alternative places for recognizing income could be established by regulators: 1) at the point when in-game transactions take place; or 2) when players convert game assets into real-world currency. We argue for realization of income, and therefore taxation, at the exchange. We expect that burdensome policies such as requiring game operators to monitor and report taxable activities to the authorities will dissuade game play and likely result in the collapse of these vibrant economies. Therefore, our recommendation is that the IRS should establish specific rules that inform players about how they should calculate income and work with game operators to inform participants of both the rules and consequences for non-compliance

The Ontological Basis of Strong Artificial Life

This article concerns the claim that it is possible to create living organisms, not merely models that represent organisms, simply by programming computers ("virtual" strong alife). I ask what sort of things these computer-generated organisms are supposed to be (where are they, and what are they made of?). I consider four possible answers to this question: (a) The organisms are abstract complexes of pure information; (b) they are material objects made of bits of computer hardware; (c) they are physical processes going on inside the computer; and (d) they are denizens of an entire artificial world, different from our own, that the programmer creates. I argue that (a) could not be right, that (c) collapses into (b), and that (d) would make strong alife either absurd or uninteresting. Thus, "virtual" strong alife amounts to the claim that, by programming a computer, one can literally bring bits of its hardware to life

Virtual Consumption, Sustainability & Human Well-Being

There is widespread consensus that present patterns of consumption could lead to the permanent impossibility of maintaining those patterns and, perhaps, the existence of the human race. While many patterns of consumption qualify as ‘sustainable’ there is one in particular that deserves greater attention: virtual consumption. We argue that virtual consumption — the experience of authentic consumptive experiences replicated by alternative means — has the potential to reduce the deleterious consequences of real consumption by redirecting some consumptive behavior from shifting material states to shifting information states