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Welcome! I am teaching law at St. Petersburg State University and engaged in legal practice with the international law firm Dentons. Major part of my research is connected to virtual worlds and massive multiplayer online games (a broad field which includes Internet law, video game law, virtual law and game studies). My legal practice is focused on providing support to computer game companies. This interest derives from my passion for computer games which I consider as one of the most important cultural artifacts ever created. Please note that this blog conveys my private opinion which is not necessarily shared by any organisations I am associated with. For more formal and detailed introduction please visit my website arkhipov.info which serves more as a 'business card'.

Thursday, August 16, 2012

Real Taxation Of Virtual Income

Prima facie thoughts on the matter.

Any virtual world (or even just an essentially single-player game with online elements such as Diablo 3) which has some kind of internal currency may pose a player in a dubious legal situation.

Would (and should) a virtual trader, whether he/she trades on a regular basis or a one-time transaction is in question, be taxed in real-life?

On the one hand, a player has virtual income when, for instance, he/she sells the loot for in-game currency. When you sell a "bind on equip" epic item on demand via World of Warcraft auction house, you get a few thousand gold for it. At the first glance, this income pertains to your avatar but not to you as a player. This would be especially true for the particular case of World of Warcraft if you check the End User License Agreement.

On the other hand, if there is a market through which this currency may be "capitalized", i.e. cashed out, theoretically nothing prevents to consider it as a taxable income. A very rough analogy may be drawn to a stock exchange. Tax authorities may be tempted to tax your virtual income in case it has an equivalent in real-money which can be verified.

This would sound a bit fantastic if this topic would not have been discussed at the governmental level in some jurisdictions. You may check a concise draft article by Michael Walpole on this topic (inter alia, pages 3 - 5), and further references therein.

And Diablo 3 Real-Money Auction House (RMAH) is a completely separate issue, as when you sell an item and receive money, you clearly have a taxable real-money income. My guess is that the lowest percentage of D3 RMAH users are going to reflect this income in their tax return next year, just because they are not aware of legal consequences.    

Would you feel comfortable if your virtual income is taxed?

Do you plan to reflect D3 RMAH proceeds in your next tax return?

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