"Second Life" and the Virtual Buck
Anshe Chung is the first millionaire of the virtual world. This means that all the linden dollars she earned through various trades and deals within Second Life can be transferred into real money outside of Second Life to a net worth of well over $1,000,000. This, in itself, has people asking questions about taxation of this virtual money.
For years people have used PayPal, which trades in real money like a virtual bank, and other on-line banking methods, these are still recorded in US dollar amounts. In Second Life you buy Linden Dollars. These virtual bucks can buy anything from a new shirt for your avatar, to wings, or a vacation house on your own private island. Or you can use Linden Dollars to start buying and trading virtual stocks, develop land and sell it, and in so doing earn yourself a tidy sum, just like Anshe Chung.
Second Life continually shifts the exchange rate for Linden Dollars to real dollars according to various criteria, trying to in effect create a virtual currency. While other systems like IMVU and There.com have offered this service, none have done it to such degree as Second Life.
By carefully balancing new sources of linden dollars with linden dollar sinks they try and uphold a steady currency of about L$250 to L$350 to $1.
Now, with Anshe Chung and others making big virtual bucks law makers, and especially IRS, have taken an interest in their doings.
They already tax income from linden dollars that have been cashed out. Now they are considering taxing assets built up within the world of Second Life, and perhaps WOW and other virtual worlds with monetary systems.
How would such a system work? Would you have to file a virtual tax report? What of those from other countries who also live within Second Life?
Could they treat Second Life as another country and leave it an autonomy of its own? Linden dollars can not be used outside of Second Life, though people do sell Linden dollars on Ebay and other websites for real dollars. Virtual real estate, while traded within the virtual world, can not enter the real world economy. It is a system of its own, separate from the real world. It is much like the Euro, you can't spend a Euro in the US any more then you can spend a Linden dollar.
What effect will a tax system have on Second Life?
When implementing their own brand of taxation to encourage players to keep down the clutter of useless objects players had a protest to unfair practices. The taxation for Second Life was created for a valid reason, to clear unused and unnecessary items and keep price of items from dropping. Players did not protest the actual tax, but the unfairness of taxing some items at higher rates then others.
Even more of interest to IRS then users turned millionaire are the actual well established businesses who make a presence in game and trade in Linden Dollars like Harvard University who sponsors classes in game, and Major League Baseball. Other businesses are jumping on the bandwagon, providing shops where you can buy clothing for your avatar and link to websites to buy actual clothing and items and have it shipped to your home.
The real question will be what effect this will have on the real world economy. All these new taxable incomes will definitely have an impact.
Also, what will happen to the casual gamer who just logs into Second Life for a bit of fun? What impact will it then have on Worlds of Warcraft, and other MMORPG's who's virtual income is regularly traded in the real world?
As the virtual world gains more significance among gamers and non gamers alike, these questions among many others will finally have to be answered.
For more information check out these links:
secondlife.reuters.com/stories/2006/10/15/us-congress-launchs-probe-into-virtual-economies/
research.yale.edu/lawmeme/modules.php?name=News&file=print&sid=1222
biz.yahoo.com/fool/061016/116103313134.html?.v=2
blogs.zdnet.com/BTL/?p=3404
Published by Crissy Gottberg
An artist and writer for the past 20 years, Crissy Gottberg has been published in several areas including poetry and how-to articles, online and in print. She has traveled extensively through the USA, and us... View profile
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- Anshe Chung is the first avatar worth over $1,000,000.
- Second Life is being used by real world companies like Harvard and Major Legue Baseball.
- IRS is now conducting a committee to decide what should be done.
27 Comments
Post a CommentVery interesting article... my boyfriend is an avid WOW participant (when he can drag me away from AC) and will surely want to know this.
Tonya, it's more then just using some other news sources. I did a few days worth of research for this article, and put it all together. Then, yes, I give credit to the sources.
Under "Takeaways" the word "League" is misspelled. Under "Did you know?" the word "participate" is misspelled. Am I to understand we can use real news sources and include links to them?
Great story! I support the IRS taxing real $$$ income when Linden dollars are cashed out. But I strongly oppose the IRS taxing virtual money that remains "in-game."
This is a very interesting article.
This is a great story. Thanks for sharing it.
One thing... Australia already does tax virtual assests. They are taxed like property, I guess. You own it, could sell it, therfore it is a potential income.
Jeff, the company that makes second life keeps a current transfer rate for the money, in effect making Linden Dollars another currency, like Euro's to dollars or yen... You just make them by creating and selling in game, then can tranfer them out of the virtual world into your real world bank account.
I'm kind of confues how this virtual millionaire can trabsfer these linden dollars for real currency. I understand how they can sell virtual characters and items from these games on ebay and such but is there some way the game company transferes the money. In the second paragraph Chrissy says this virtual money can net a million but how is this possible to tranfer it to real money. And if the person who has this money does sell it off in ebay or someother thing the tax code already has things in place to tax that. If you sell anything over a certain dollar amount, ebay has to add you into their tax records as having sold stuff worth x dollars.
A lot of this is obviously hype by the Second Life people. This supposed millionaire probably already had a lot of real world money to begin with; however, it does get a lot of people's attention. Normal people with day jobs (or even bored teenagers for that matter) that play MMORPGs are not going to get rich selling in-game coin, uber level bazillion characters, or the elusive sword of world domination. Remember the old adage, if it sounds to good to be true, then it isn't. Also, I agree with Ghosty Twofish, there's no way the IRS is going to tax virtual goods. It's simple -- real money = real taxes. The tax code is complicated enough, just imagine adding ever-evolving virtual economies to the mix. Seriously.
What a great article. Very interesting. Thank you for sharing this topic with us!