Role playing (WoW type games) barters and the IRS

Great Debates
1

Ripped from NPR.

First, a confession: I don’t play online role playing games like WoW, so my knowledge comes from whatever I’ve read from others or heard in the above NPR story.

Apparently in some of these games, it is possible to sell on eBay or elsewhere (for real cash) items aquired while playing online role playing games like WoW. It is also possible to trade items that might have monetary value. The example used in the story…I swap my sword for another person’s shield.

Now, according to the lawyer who researched this…a straight out SALE of such goods on eBay or elsewhere is income subject to taxes. If someone sells a bunch of virtual armor on eBay, the money made is taxable income.

The real question is about barters. In the “real world”, barters are also subject to taxes. If I’m a plumber and perform some plumbing services in exchange for a painting worth $500, both the painter AND I have to claim that $500 as income for the IRS (according to the NPR story, IANAL). Likewise, if I WIN something of value, say a new car…that too has to be claimed.

What about online barters…if player A swaps stuff that normally might fetch $500 on eBay for Player B’s stuff (of equal $500 value)…is that taxable income for the IRS. Or, if I “win” stuff that DOES have real value if sold on eBay, is that subject to taxes much like winning real life prizes?

The lawyer in the story called the IRS…finally got connected to the barter department of the IRS who talked among themselves and said that they THOUGHT that barters of otems aquired on WoW WOULD be subject to taxes, but told the lawyer that he should seek an official ruling. He declined to seek that official ruling and said (to the NPR reporter) that he would not claim that kind of thing on his taxes.

What say you …do barters for role playing items (that would have monetary value if sold on eBay) subject the barterers to taxes? How about merely “winning” said items?

2

Yep, it’s pretty common - a lot of “farming” (as it’s called) groups can be pretty professional. Seeral people on shifts can take turns collecting materials or loot from “mobs” (low-level enemies) and then these can be sold for a pretty good amount of actual money.

Here’s what I think is the problem. These items, in the WoW (or whatever game) universe, can cost WoW money (in gold, silver, and bronze) to buy from either NPCs or other players. Items have a set cost in WoW money. However, they have no actual material value - they do not cost anything in real world money terms. That people can be charged for them on eBay or elsewhere does not mean they are worth that amount, only that someone is willing to pay that amount for them.

Think about it in terms of Monopoly - I can own a property, and this can be traded around other players for Monopoly money. If I want to, I can sell the title deed on eBay. Someone (in possibly the strangest method of cheating ever) might buy it from me for £50. Does that mean that title deed is “worth” £50? No, because that’s the price I choose to put on it, and that someone else is willing to pay. It’s probably worth about 2p, being a bit of printed cardboard.

We don’t charge tax on deals in Monopoly - why should we for online game items?

3

That is the definition of value for anything and the “thing” need not be a tangible, physical object.

Indeed, if you look at the WoW items on EBay they almost always specifically state that you are paying for the person’s time to obtain the item for sale and NOT the item itself. Essentially they are putting themselves out there as a service. This is an attempt to dodge Blizzard’s terms of service which prohibits buying and selling of items outside of the game world. So, in this case you are paying for a service and I absolutley agree that anyone doing so should count that as income.

Now, trying to tax items bought and sold entirely in-game with in-game money and/or items seems ludicrous. I guess I can see the point that technically you are getting something that might have real world value (most items obtained in game are not worth selling…often called “vendor loot” because you sell them to NPCs for gold because no one would bother bartering for them…but of course the “gold” you get for the sale does have a real world value). Nonetheless applying a real world value ot every item you get and tracking the loads of junk you do get and then duly reporting that to the IRS and paying them for it seems absurd. If they tried it would be the death of online gaming (I am NOT going to pay to play a game and then pay lord knows how much to the IRS down the road…imagine people foregoing good loot because they cannot afford to pay the taxes).

Also, kids play this game. As do people from other countries. How would they plan on taxing them?

4

Apparently, this would also affect the makers of these games. The lawyer mentioned that they (the makers of the game) would have to file additional tax forms if those “goods” had taxable value. That’s one reason that he said he didn’t want to request an official ruling from the IRS…he didn’t want to be the person that put them in that position :wink:

5

It’s best, I feel, to consider this some weird offshoot of capital gains. As long as you keep turning it over in-game, it has no actual value. And remember, you do not own the object in any meaningful sense. The company can go out of business, they can destroy the value of the object at will, and it could get accidentally nuked.

Just like any DRMed music, for that matter.

And furthermore, actually buying or selling the gear creates a non-trivial chance that you will lose your entire account, as it is against the terms of service of the game. It’s not illegal, of course, but it would be a breach of contract. So, while you may have items to the value of $500, if you were to sell one for $50, you might lose the other $450.

There is no (excluding Everquest, which is atypical for this discussion) way to cash out, and stay within contract.

Makes it a bit interesting.

6

Except that there is NO question (according to the lawyer on NPR) that items that are sold on eBay ARE subject to reporting for taxes…regardless of the status of the company. If sell WoW weaponry on eBay for $500, I am supposed to report that income for tax purposes…that doesn’t appear to be in dispute. The only issue is bartering or “prize” winning, where actual money has not changed hands.

7

Bartering is out at least for WoW stuff for other WoW stuff, because none of the items that my WoW characters are equipped with are mine. All the virtual equipment in the game remain the property of Blizzard, no matter who is using it. This is one of the terms that we have to agree to when we install or even upgrade an installation of the game.

8

I’m confused then…forgetting about bartering, what exactly is being SOLD on eBay then? Are the players selling the rights to use weapon x? They must be selling “something”, and I gather Blizzard permits them to do so.?

If it’s OK to “sell” some type of WoW virtual “item”, then it’s OK to barter said item as well, right?

9

People EBaying WoW items are selling the time it took them to get the stuff. They specifically state this in their ads so they do not get in trouble selling something that they in fact do not own (everything in WoW is owned by Blizzard). I also think it is a dodge to get around Blizzard’s TOS but if Blizzard wants to cancel your account for EBaying that disclaimer won’t stop them.

I cannot see how the IRS could tax something of “potential” value before that value is realized. Let’s say Stephen King writes a new novel. Based on past successes it might be said that the novel is worth $1 million. Should the IRS tax that even if Mr. King never sells it and it just sits on his desk? Same goes for a pianter of sculptor or carpenter or what have you.

So too with WoW…even though I possess something in-game that might have value in the real world why should I be taxed on it till I actually relaize that income?

10

Here’s a consideration that the NPR report did not address: as I understand it (and correct me if I’m wrong), under the rules of MPORGs, “farming” is a violation of the rules of the game. So an in-game barter has value IRL only to those who are willing to cheat, and who, at least theoretically, risk being barred from the MPORG.

So, if you obey the rules, the in-game barter has no RL value. It has RL value only if you consider the actions of violators of game rules. I’m not quite sure how that would affect the IRS analysis, but I would certainly raise it as an issue/defense before a tribunal.

Sua

11

I bow to those folks who know about this stuff than I do…I wasn’t aware that it was contrary to the rules of the game.

12

That’s what I was saying, Sua. It’s against the rules of the game. You can certainly do it, and make real money. And if you make real money, you can be taxed. But I could make real money by charging $500 for a single post-it. Should that mean that everyone should be taxed at that value for giving the pad to your neighbor, and accepting a different colored pad of post-its back?

Potentially, that single post-it is worth $500. But until the value is realized, it’s just a darn post-it.

If I’m playing a game, and it’s against the rules to sell the gear, and I follow the rules, then what I have can’t be worth real money, as there is no legitimate way to make a profit of it.

Unless, of course, you consider in-game money to be a form of actual currency? That could be interesting, as items that sell for real money, (against the rules of the game) sell in game for gold. You generally can buy vast amounts of game-gold for real money, too. (Also against the rules.) Assuming you had an Awesome Breastplate, it might sell in game for 50 gold. The thing is, in RL, you could get 300 bucks for it on E-Bay. On the other hand, you could buy 1,000 gold for $50. What’s it really worth? Can you penalize the players by assuming everything is sold for e-bay prices?

And don’t forget, the most expensive items tend to be game-breakers, that obsessives must have for the most power. But game designers tend to find the game-breaking bits, and reduce their power, making them useless. So the Awesome Breastplate may, for two months, have sold for $300, but now, is unsellable, as nobody would want it.

At the end of the year, if a new player has an Awesome Breastplate, it being something he can get easily, how much should the IRS think it worth?

What if it becomes powerful again?

The depreciation schedule of virtual items is whimsical, and sometimes negative.

13

Blizzard actually is the owner of all WoW property: your subscription allows you to use it, but if they decide to pack the servers up and go home, you’ll have no recourse. As I understand it, if you sell your sword for real money, Blizzard could conceivably go after you in court for breach of contract and for selling the right to use something that they gave to you and only you.

Therefore, I don’t see how anyone is really bartering in the real-world sense. If John loans me a book and then (with his permission) I pass it along to Frank, but everyone knows that John can get the book back whenever he wants, does Frank pay taxes on the book’s value? Do I?

Daniel

14

I’ve never played WoW, but I do play EVE Online. My character’s net worth is somewhere between 1 and 1.5 billion ISK, which at the rates ISK sell at on eBay would come to US$250-400, plus my character itself would be worth something.

Leaving out the issue of eBaying being against the rules, there’s also the issue of destruction of property. Unlike many games, in EVE being killed has consequences. If your ship is blown up, it’s gone. Now, you might have insured it, but many ships are effectively uninsurable because you can only insure for the “base value” (cost of production, roughly), while the replacement cost on the open market could be many times higher, and even if you can insure for full value, you’ll lose the 30% of that value you spent on the insurance. So, if I’m flying about in my spanky new Heavy Assault Cruiser worth 200 million ISK, and I get ganked at a jumpgate by pirates and my overpriced ride becomes spacedust, what then? If the IRS (or in my case Revenue Canada) taxed me on the in-game income I used to acquire the ship, can I sue the pirates for destruction of property? If part of my character’s assets are shares in a corporation that is wiped out by corp theft, can I ask real-life police to press charges against the thieves? If I’ve contributed billions to the production of an outpost that is subsequently taken by a rival player alliance by military conquest, do I have any legal recourse?

The simple fact of the matter is that I don’t own my character’s property in anything like the way I own real life property. It can be stolen or destroyed by other players without any out-of-game consequences - which is as it should be. “Evil” characters make the game more fun. But it also means that my title to my in-game property is radically unlike my title to my car.

15

FWIW, the original article from Legal Affairs is posted here …interesting read

16

I think this is what would ultimately be the “defense” should the IRS ever actually look into this. The fact is, as mentioned, the player does not actually own anything in the game. That in-game items have some value in the real world does not change this fact. Technically what EBayers are selling is their time. Consider it a service. The person buying the Uber Sword of Ganking for $500 on EBay would have zero recourse to anyone if the next day Blizzard said the Uber Sword of Ganking was too powerful and is being removed from the game. As such I do not see how it could reasonably be taxed.

The only people who should be taxed are the sellers on EBay who collect real life money (which is currently how it stands and no problems there).

17

It’s not the act of farming (spending time to acquire rare or in-demand items) that is against the End User Licence Agreements (EULAs), it’s the selling of that item for real-world money. If I, as a player, decide that I want to spend all my time picking up shiny rocks, that’s fine. If I trader or “sell” them, in game, for other in game items or in game money, that’s fine too. If I decide to sell them for $50 on EBay, then I’ve broken the EULA. The rest of your post is correct.
There is a game out there that allows you to cash out in game currency for real world currency. “Project Entropie” has a system allowing the conversion of real world cash to game cash, and back again. The game is based out of Sweden, I believe. I wonder how that affects taxation. Did I earn the money in the US, in Sweden, or someplace else entirely?

18

If I understand the point that several posters have made…the virtual goods “sold” on eBay are not “real” because Blizzard et al does not permit them to be sold.

I’m not sure that that is how the IRS perceives things though…

From Legal Affairs:

Even though the forgiven gambling debt of $2.9 million was not “real” spendable currency, at least some courts apparently thought it was taxable.

19

More importantly, they’re selling something they don’t have a legal right to sell. Consider if I go to one of those restaurants where you throw your own steak on the grill. I’m a master griller, so I start charging people to grill their steaks to perfection; furthermore, I start doing a comedy routine for tips at the restaurant. The restaurant has forbidden all such behavior explicitly; when I set foot in the restaurant, in fact, I signed an agreement not to do anything like that.

The restaurant is likely to kick me out, and I wouldn’t be surprised if they try to get back the money I earned by setting up shop in their restaurant. I might say people were paying me for my time, but the restaurant could easily deny that charge, since I didn’t have a right to set up shop in their restaurant in the first place.

That’s what the farmers are doing: they’re setting up shop on Blizzard’s computer servers, even though when they created an account in the game they explicitly agreed not to do so. The sales they make, therefore, are in violation of contract, no matter what their bogus defense is.

On a tangent, I might agree to give someone a ride to school if they’ll help me study for my midterm on the ride. Must they report the taxi-ride income, and I report the tutoring-services as income? What if I offer to take my kid to Disney World if he cleans his room faithfully every day for six months? Are we talking travel-agent income and cleaning service income? This bartering thing can get ridiculous pretty quickly, and I think the WoW argument is an example of the ridiculous.

Daniel

20

Damn, you made me look.