The Play's the Thing: A Theory of Taxing Virtual Worlds

72 Pages Posted: 18 Apr 2007 Last revised: 3 Aug 2014

See all articles by Bryan Camp

Bryan Camp

Texas Tech University School of Law


Taxation is shadow life. As our culture monetizes more and more life activities, the shadow grows. This article looks at the potential tax issues arising from a new life activity: online role-playing games in virtual worlds. Currently, some 12 million people regularly play such games and the number is growing. Exploring the reach of the Tax Code into virtual world transactions not only responds to the potentially practical needs of millions of U.S. taxpayers, it also permits a reevaluation of core principles of income tax as they interplay with life activities in the context of 21st century American culture.

This article's central thesis is that while player activity in virtual worlds produces measurable economic value to the player, player activity that occurs solely within the online virtual world is not gross income under the law. The article argues for a "cash out" rule. Players whose added wealth consists solely in what are defined as "units of play" should not be taxed unless and until they convert those units into cash or property that is something other than a unit of play. Conversely, when the play ceases, taxation begins. The resulting line-drawing difficulties have nothing to do with player intent nor with "fun" and "games." Instead, the issue presented is as old as the Tax Code itself: at what point does economic gain become legal gain? The new context of virtual words allows for a renewed exploration of how and why the legal concept of "income" differs, and indeed must differ, from the economic concept.

The article proceeds in three parts. Part I describes the relevant facts of online role-playing games. It describes two popular virtual worlds which sit at opposite ends of the spectrum of online gaming - World of Warcraft and Second Life - and describes how game-related activity produces economic income. Part II reviews the basic rules of income tax, focusing on the broadness of the theory of gross income under section 61. Part II argues that the limits of section 61, whether imposed by Congress, the courts, or the IRS, are best described as operational limits. Part III applies the basic tax rules to virtual worlds and advances a theory based on "units of play" to distinguish between virtual worlds that are games and virtual worlds that are the equivalent of bingo halls or barter clubs. Using the concept of imputed income, Part III discusses the circumstances under which economic activity in-world involving only trade of virtual goods or services for virtual money will cast a real world tax shadow.

Keywords: tax, virtual worlds, World of Warcraft, Second Life, Everquest, imputed income, realization, gross income, tax administration, tax policy, law and economics, American culture, cyberproperty, cyberlaw, property

JEL Classification: A12, A13, D63, E40, F15, H11, H20, H24, K34, K23

Suggested Citation

Camp, Bryan T., The Play's the Thing: A Theory of Taxing Virtual Worlds. Hastings Law Journal, Vol. 59, No. 1, 2007, Available at SSRN: or

Bryan T. Camp (Contact Author)

Texas Tech University School of Law ( email )

1802 Hartford
Lubbock, TX 79409
United States

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