In the theme of "All Things Warcraftian" this week, apparently the United States Internal Revenue Service is looking into taxing online transactions between sellers of online currencies.
For those who aren't initiated into this secondary world of MMoRPG gaming, gold is what you can use to buy reagents, items, potions, food, or other items that your character might need and/or want. For a lot of players who don't have time or energy to spend running around getting thousands of pieces of silk or mining ores for your character's development, it's simply faster to go online and buy these things through the Auction House or marketplaces in game.
However, the "gold" is a complete fiction. It mirrors the decimal metric system of most modern economies, and like anything else, when there's a supply, there's always a demand.
There are countless stories of players who use the "sell high and buy low" mentality to increase their personal wealth, watching for when trends or changes to the game drive a price increase or decrease in one type of item for sale or another on the Warcraft auction houses. Likewise, in Second Life, there are people who make decent amounts of money by generating Linden Dollars by doing services (in one case, a virtual escort in Italy picks up the equivalent of a cocktail, one virtual customer at a time).
But most of the gaming companies that create this kind of virtual online currency aren't making the currency a financial opportunity. Blizzard, World of Warcraft's creator, has specifically punished both players and sellers of the currency, eliminating huge amounts of gold currency simply by deleting it from their servers and the sellers' and buyers' accounts.
The issue at stake in this review by the IRS is not that companies making money off of the sale of virtual goods should or would get taxed. The legality of these organizations is one thing. Much like a website selling components that allow you to hack into your own Xbox and modify it to copy games, the actual legality of the transfer of goods from one customer to another is in a questionable gray area.
For instance, Blizzard retains the rights to the character and to the account that each player "owns" - allowing access to that account for a flat monthly fee. The license agreement of the Blizzard software means that the servers, the characters, the items, the gold, and everything else is owned proprietarily by the company - not the person playing the game. Which means that an independent third party selling gold is actually selling the transfer of in-game assets from their account to another account. They're not actually "selling" property that they themselves own; they're making a profit off of what Blizzard owns.
That nebulous concept is what has kept gold selling websites like IGN.com and IGE.com in business for years - that the gold sellers and gold buyers are just transferring immaterial things. However, Blizzard's operating procedure is still fairly clear - gold sellers and buyers screw up the game's mechanics and warp the economy as surely as a Ponzi scheme or Bernard Maddoff's stock market shell game have done to Wall Street.
In some ways I truly hope the IRS doesn't get into this sort of thing, although I do believe taxing the people who make money off of the gold sales is the most logical thing to do. The money is income; and regardless of whether that income was gotten through approved legal methods, the transaction histories of most of those sellers (usually through PayPal or other electronic funds transfer systems through the Internet) should still remain onboard.
The biggest issue (and possibly the stickiest of them all) would be the foreign companies that have comprised so much of the gold seller market - companies who have outsourced the gaming and the wealth generation to, of all places, China and Korea.
Which begs the question - if you're selling a nonexistent product using a bank account that doesn't have a physical address and a buyer who doesn't pay you any recognized currency of any kind, can you actually tax it?
The answer is no, so Warcrafters, don't worry. You don't have to shell out 30% of your WoW profits from killing those three hundred spiders in Goldshire to Uncle Sam. However, if gold sellers who are intentionally violating the Terms of Service of Blizzard are making money by working their keyboards to nubs, then yes, it's likely they'll need to fork over a chunk of their change.
Which, in strict economic terms, means that if you are one of those people who love to plonk down actual money for virtual currency, regardless of its legality, expect that in the near future, your gold may well cost you a few more real greenbacks.
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