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Metaverse Taxation on the Way?

Posted on 1.29.2007

Whether voluntarily reported or prodded by the IRS, taxation for transactions, trades and barters through metaverse sites such as Second Life and World of Warcraft may be on its way. The Joint Economic Committee of Congresss is set to release a report in a few months that will address the tax issues surrounding these virtual - yet very real - economies. While this may be bad news for players in the metaverse, and even worse news for those that actually make a profit from these sites, one can take comfort in the fact that those IRS folks are going to have many, many long nights trying to wrap their heads around this one.

It's certainly going to be a challenge for the people trying to set taxation standards. One hurdle is the varying exchange rates of these virtual economies. World of Warcraft's currency, the Azerothian gold coin, trades at an unofficial rate of seven per US dollar. Second Life's offical exchange rate is approximately 50 cents per 100 Lindens (Second Life dollars). Now, what happens when the next 500 metaverse sites with their own currencies and separate exhange rates pop up - over the next few months or years? You can bet that if a user is successful making money on one of these sites, they will be hopping from world to world trying to make even more money.

And then there are trades and barters. How can you set a value on trading a spiffy new sportcoat for a shiny new bicycle? Who makes out better in that deal, and how many Lindens are changing hands? IRS spokesperson Nancy Mathis said via email, "whether exchanges constitute bartering depends on the facts and circumstances of each case." In other words, the IRS' official stance can be said to be "undecided." But, rest assured, the government will find a way. This may just be a quick stab at scaring users into voluntarily reporting their metaverse income, while testing the waters for future taxation standards.

There is good news. Former Joint Economic Committe chair Representative Jim Saxton was clear in his opposition to this sort of taxation, back in October 2006 when the research project was launched. His chief economist, Dan Miller, is a veteran World of Warcraft gamer with a very high-ranking character in his arsenal.

UPDATE: eBay has announced a ban on auctions of assets acquired with World of Warcraft and other online games. Signaling the grey area of such transactions, eBay spokesperson Hani Durzy said, "We are not saying they are legal and we are not saying they are illegal." eBay currently does not consider Second Life a game, so the restriction does not apply.

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