Second Life Taxation

Coxe

This is a bit off topic, as it involves money but not coins, at least not to my knowledge. I suppose a virtual coin bourse like the PCGS World Series with Linden bucks (or the equivalent) that could be cashed out anytime might be an eventuality, actually a likely thing in time.

Basically, Second Life and similar virtual economies are virtual worlds trading in virtual goods and services. You can make virtual money, participating for an entry and/or monthly service fee. You can cash out after trading real estate (like parcels on virtual islands) at one point and that can be a taxable event. However, Congress has taken notice of the magnitude of the transactions within this virtual world involving totally nonexistent things. They want to tax every transaction as if it is real. I think this is ripe for discussion and many folks here might bring up some interesting points.

I think the idea of the coin bourse limited by pops, like the World Series here would actually be a lot of fun and would be doable as a virtual economy. Might even be cool for some with virtual registry sets and all.

Here's a link to the taxation idea: Reuters Article

Here's a (not so great read) wiki article too: Wiki Link

Talk amongst yourselves........

CarlWohlforth

A transaction in a virtual reality, like Second Life, is a real transaction if it involved something of real value. So if you make a profit it should be taxed under existing laws.

TwoSides2aCoin

My friend recently told me about this SECOND LIFE thing... He said, "you can get anything you want there...it's a cyber world online". I said : 'sure Rob, like I can get a wife".... He says, "yes, even that".
That was enough to scare me away.

Pentimento

Every single time I have discussed this topic with someone I have gotten annoyed. People have some kind of mental blockage that doesn't permit them to actually think about this issue beyond the "nerds are crazy" angle.

A virtual economy must be based on real world things. In Second Life one could, for example, trade 3 virtual dollars per minute for Skype phone sex. This is obviously pulling real dollars out of the economy. You would have to find someone willing to take Linden bucks for the service. The person charging the virtual money for that steamy chat might then spend the 100 bucks they earned on 10 minutes of instruction from a college professor, wouthout ever leaving the game. Seems simple enough.

I have professors who teach classes in virtual worlds, and I have met someone who did a job interview inside a multiplayer game like this. Many people do the PCGS World Series for nothing more than experience and education.

(edit to finish my point because I had to buy ice cream)

My point ... I do see these types of transactions taking real dollars out of the economy, and I think it will come onto the tax man's radar soon. Think of the online services that could be traded using virtual dollars-- original fiction, online classes, smut, website development time, therapy, numismatic advice, etc. As that purely closed system takes root, these virtual dollars might begin to trade against the dollar (as World of Warcraft gold has).

Coxe

Well, there are sure enough crazy (and otherwise) nerds on here I guess to engage in better conversation.

This does present a host of rather interesting challenges for taxation. Would cyber real estate be taxed in ways similar to proper real estate investments? Accepting cyber cash for services like instruction or seedy conversation seems like regular income. Would regulars or the adminstering company be mailing out 1099s? Could imagine a host of loopholes and exclusions might be maximally exploited in this world in rackets to launder their 1040 with counterbalancing line items.

And would the same taxation be used for gains on virtual coins as real ones? I can't imagine so unless they legislated it that way specifically in the future.

Longacre

If the virtual world spills into the real world, and items of value are bartered or exchanged, then the right to tax may arise. I am not familiar enough with the rules of the game to understand where that transition is made. It is an interesting concept and Pentimento raises some good points about dollars going out of the real economy. At that point the "value" question becomes easier to quantify and possibly tax under the barter provisions of the Code.