It's Just a Game, or is It? Real Money, Real Income, and Real Taxes in Virtual Worlds

Communications of AIS, Vol. 19, July 2007

Posted: 17 Oct 2007 Last revised: 3 Aug 2014

See all articles by Brian Mennecke

Brian Mennecke

Iowa State University

William D. Terando

Iowa State University

Diane Joyce Janvrin

Iowa State University - Department of Accounting and Finance

William N. Dilla

Iowa State University - Department of Accounting and Finance

Date Written: 2007

Abstract

Virtual worlds like Second Life offer players opportunities to earn real-world income through their activities in the game. It will not be long before governments begin to establish policies and regulations regarding the income generated by players of these game environments. This paper examines the issue of taxes in virtual world games. Two alternative places for recognizing income could be established by regulators: 1) at the point when in-game transactions take place; or 2) when players convert game assets into real-world currency. We argue for realization of income, and therefore taxation, at the exchange. We expect that burdensome policies such as requiring game operators to monitor and report taxable activities to the authorities will dissuade game play and likely result in the collapse of these vibrant economies. Therefore, our recommendation is that the IRS should establish specific rules that inform players about how they should calculate income and work with game operators to inform participants of both the rules and consequences for non-compliance.

Keywords: virtual worlds, massively multiplayer online games (MMOG), Second Life, taxation policy

JEL Classification: H24, L86

Suggested Citation

Mennecke, Brian and Terando, William D. and Janvrin, Diane Joyce and Dilla, William N., It's Just a Game, or is It? Real Money, Real Income, and Real Taxes in Virtual Worlds (2007). Communications of AIS, Vol. 19, July 2007. Available at SSRN: https://ssrn.com/abstract=1022064

Brian Mennecke (Contact Author)

Iowa State University ( email )

Ames, IA 50011-2063
United States

HOME PAGE: http://www.bus.iastate.edu/mennecke

William D. Terando

Iowa State University ( email )

613 Wallace Road
Ames, IA 50011
United States

Diane Joyce Janvrin

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

William N. Dilla

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

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