Taxing virtual assets?

A new point of discussion for
gamers, developers, and taxing officials worldwide-are virtual assets taxable?
Journalist and 'Ultima Online' junkie, Julian Dibbell has made this question
public. He has earned a fair deal from selling to other players in the real
world the weapons, currency, and other goods he had accumulated in the fantasy
game 'Ultima Online'. Now, with a new article published in the latest issue
of Legal Affairs magazine, Dibbell asks, “Should online game players
assets-the weapons, characters, clothing, and such-they've accumulated,
but not yet sold for real-world cash be taxable by the
Internal Revenue Service (IRS), in the US.

After all, since the trafficking of virtual goods from games
such as 'World of Warcraft', 'City of Heroes', and 'Star Wars
Galaxies' on exchanges such as eBay, sets their fair market value. The online
game players are collectively holding these digital assets worth millions of
dollars at any one time. And some say-that's a target the IRS can't ignore
forever, raising the tricky question of whether virtual goods that are
frequently bartered and exchanged in the gaming world be deemed a taxable
possession before, they are sold for real-world money.

“From the standpoint of economic theory...there's no
fundamental distinction between selling euros and buying magic wands,” said
Ted Castronova, an expert on virtual economies and an associate professor of
telecommunications at the University of Indiana at Bloomington. “They carry
value with them. If you're going to tax exchanges in the real world, you've
got to tax exchanges in the virtual world, in economic theory.”

The problem, said Castronova, is that it's not about
economics. “It's about common sense,” he said. “Common sense says that
when people are playing a game of Monopoly, you don't tax (the properties they
buy and sell).”

No one knows the exact worth of the virtual assets of the
millions of online game players. But with estimates for the sales of such goods
going as high as $880 mn a year, the unconverted assets are surely worth similar
amounts. Thus, the government's share, if the government were ever to lay its
claim, would be substantial.

But observers of online games worry that the IRS doing so,
could be a disaster for online games. That's because it would require the
constant tracking of the value of every kind of in-game asset and of all
nonmonetary transactions. And Castronova doesn't think such an imposition by
the IRS would be a good idea.

“That would be insane,” he said. “You could do it. But
it would just be a ridiculous burden. These game companies would have to keep a
digital record of players' income and sales...It would generate a lot of
paper. You'd have to set aside a lot of servers to keep records. It would add
to the cost of games.”

In any case, Dibbell isn't sure-whether in future the
online game playing will be free from tax forms. On the other side of the hot
debate, Castronova hopes that the IRS would see the social value of staying
away. “What would be nice, would be a conversation between the IRS and the
National Science Foundation,” he said. “The NSF might say, these worlds are
really important social investigation tools and that if we treat them as an
extension of the real world, they'll lose their value as a place where we try
out social experiments.”

Source: www.news.com

Jasmine Kaur  

jasminek@cybermedia.co.in