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January 17, 2006

Are Virtual Goods Taxable?

That's the question in an analytical piece by Daniel Terdiman on CNET.  Game players collect virtual assets which they apparently sell to each other in the real world using real money.  While taxing real world transactions sounds pretty straightforward, there is more to it.

Terdiman focuses on an article by Julian Dibbell in Legal Affairs Magazine.  Dibbell is a writer, a game player, and a virtual asset seller.  His article describes his encounters withe the IRS on this topic.  While the IRS didn't seem to have its act together in Dibble's story, the CNET article notes that current transactions in virtual goods is around $880 million (and growing)  That's some chunk of change.

The problem is the accounting for all of this.  The game companies aren't set up for it, nor are the players.  But they could be if government gets involved. Where there's significant money, you can bet congress and the tax man won't be far behind.  At the right rate, the government may just be able to fund that bridge to nowhere in Alaska that Senator Ted Stevens (R-AK) whined about in the last round of Senate budget negotiations.

January 17, 2006 | Permalink

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