Virtual Taxation? Probably Not Yet

There’s a discussion at Slashdot about the possibility that Congress may consider taxing virtual goods. The post is based on an CNet item by Daniel Terdiman which notes that Congress’ Joint Economic Committee will receive a report on virtual world economies in August. The story offers no news on what the report will say, but concludes that “it’s clear that something will happen,” basing this on comments from last December from a committee economist.

I don’t think it’s clear at all. Congress hasn’t been quick to act on complex tax issues regarding the Internet. And taxing virtual goods is complicated. If your only interest is in taxing income from the sale of virtual goods, no action is necessary, as that is income which is already subject to tax laws (see Julian Dibbell’s wonderful book Play Money and his dialogue with the IRS). If you want to tax virtual goods in WoW because they have cash market value at IGE, who do you tax? Under the ToS, Blizzard believes it owns all the in-game assets created by WoW players.

There are many unresolved issues regarding the ownership and taxability of virtual goods, as practices and scenarios vary widely across the virtual frontier. Can Congress sort this out? It would take a lot of time to do so, and I just don’t think the cost/benefit analysis on taking action makes sense for Congress.

If only they could tax all that mad-crazy income from those Chinese gold farmers …