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VWN News: Should real profits in virtual worlds be taxed? ISU professors say there's a way to do it
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 Should real profits in virtual worlds be taxed? ISU professors say there's a way to do it

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Date posted: 04/04/2008

In social VR and VR gameworlds, a large amount of people are making a lot of money ? some 200 million to 800 million US dollars worth per year and growing ? that is tax free.

The American government is understandably annoyed by this. Many of the larger worlds run on servers hosted in their country, and most of the trade is from virtual currencies and items into US dollars.

But neither the Internal Revenue Service nor game administrators have a process in place for players to report their profits upon cashing out, making these virtual worlds a tax haven for some.

Four professors from Iowa State University's College of Business have been studying how to change that. They have recommended some tax methods for Second Life income in a pair of recent research papers.

The team includes Brian Mennecke, an associate professor in management information systems; Bill Terando, assistant professor of accounting; Bill Dilla, associate professor of accounting; and Diane Janvrin, assistant professor of accounting. Their first paper, titled "It's Just a Game, or Is It? Real Money, Real Income, and Real Taxes in Virtual Worlds," was published in a 2007 edition of the Communications of the Association for Information Systems, a professional journal. A second paper, "Taxation Policy in Virtual Worlds: Issues Raised by Second Life and Other Unstructured Games," is currently under review for publication in another journal.

"The primary audience for these papers is the occasional player who makes in the range of $1,000 to $10,000 (through virtual worlds)," said Dilla. " The analogy would be the occasional gambler who goes out and gets very lucky and has a big enough winning to be issued a 1099 at the casino. There's probably a good group of people out there who are unaware that if they cash in their Linden dollars (Second Life currency) and get a couple of thousand in U.S. currency, they're liable for tax."

The ISU researchers say that most people who make their livings from these virtual worlds probably already report it to the IRS. But some of the less serious or occasional players who also make sizable profits may choose not to report.

"To date, this income has largely escaped taxation due to the lack of a well-developed body of tax law in this area," the researchers wrote in their latest paper. They propose that all social virtual environment participants of whichever VR, be required to recognise virtual world income when they convert their profits into physical world currency. Ideally those profits going to the US gov, regardless of where the individuals live.

However, a proposal is a long way from actuation. Unless they can pursuade each of several thousand companies to implement systems to automatically add tax calculations when converting ? not to mention all the individual person-to-person trades, this will remain a taxation pipe dream.

See the full Story via external site: www.physorg.com



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