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Taxing MMO Virtual Goods?

Users have been selling in game items from MMO’s for real cash for a while now. Some are regular users, other’s are farmers. In either case, legally they should report the money they receive as income for tax purposes. Nothing wrong with that.

However, Business Week has an article exploring the possibility of the government declaring all game items as having value, and therefore tax the users upon receipt of these items. The game company would have to keep track of all transactions, causing a lot of extra work and additional cost for them.

Per the article, “The tax law has a clause that includes a statement about goods acquired through barter or won (prizes or cash) in a game. Technically speaking this means those “earnings” are taxable the very moment someone comes into possession of them, regardless as to whether or not they are sold for money.”

Would the government ever attempt something like this? My initial thought is no, but you never know with the government’s insatiable desire for more income. And we are talking about potentially huge sums of cash, upper estimates have been made at $880 milliion, and that could prove too irresistible to just leave alone. Hopefully the idea of taxing a transaction in a game will be seen as so ridiculous that it will never be tried.

Posted by Jeff

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