The big challenge? Figuring out what can/should be taxed and what rules generally apply. The National Taxpayer Advocate suggested this week that the "IRS issue guidance addressing how taxpayers should report economic activities in virtual worlds."
"Economic activities in virtual worlds may present an emerging area of tax noncompliance, in part because the IRS has not provided guidance about whether and how taxpayers should report such activities," states the report's Executive Summary.
A big part of the fun of reading government reports are the gems of wisdom that is cranked out, including The Most Serious Problems Encountered by Taxpayers which gives top billing to "The Complexity of the Tax Code."
IRS data show that taxpayers and businesses spend 7.6 billion hours a year complying with tax-filing requirements. To place this in context, it would require 3.8 million full-time employees to work 7.6 billion hours. In dollar terms, we estimate that taxpayers spend $193 billion a year complying with income tax requirements, which amounts to 14 percent of aggregate income tax receipts.
So, the report simultaneously suggests guidance for new taxation while stating that tax codes are too complex. I just love irony.
Via VirtualWorldNews
I wrote previously about China's attempt to tax virtual goods and currency, and now the BBC reports that Sweden and South Korea have also moved to clarify the tax rules for virtual money.
In April 2008 Sweden's tax office published a clarification to its tax laws which said that in-game transactions are taxable--in theory. I am sure Ben Franklin was referring to Linden dollars when he wrote, "In this world nothing can be said to be certain, except death and taxes."
The taxation subject seems to be more a case of what happens when virtual money turns into real money than it does a question about virtual transactions. Second Life markets itself as a place to make actual money, whereas World of Warcraft bans trades for real money.
I'm inclined to side with WoW that keeping real and virtual money separate is the right thing to do. And it's a bit hard to fathom that a digital asset does anything but diminish or have a relative value to that specific game.
Besides, what happens if the game company goes out of business? It's not like you get to take your special sword to the Sponge Bob game if WoW suddely disappears.
The transaction volume of digital "assets" reached 9.36 billion yuan ($1.37 billion) in 2007 and is expected to hit 11.12 billion yuan in 2008, according to 5173.com, one of China's major virtual-asset transaction platforms
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