From time to time, the topic of taxes in Second Life comes up. Many content creators I know who make “real” money in-world and cash it out on a regular basis are aware they’re liable to pay income taxes on it, but recently I came across this paper by Indiana tax law professor Leandra Lederman, suggesting pretty strongly that sales taxes ought to apply to in-world purchases made with Lindens whether or not you actually “cash them out” into US Dollars. Writing in the Yale Law Journal she states:
Millions of people participate in virtual worlds—immersive online forums such as Second Life and World of Warcraft (WoW). While some online activities lack significant economic implications, one of the attractions of Second Life, which is designed to be a commercial platform, is the prospect of making “real money.†This essay argues that profits received in the form of Lindens (Second Life’s currency) should be taxed in much the same way profits received via PayPal, a widely used electronic-payment system, are. Although Second Life profits could instead be taxed once the taxpayer sells for real money (“cashes outâ€), that would create a special exception for Second Life that does not exist for platforms such as eBay. It would facilitate abuse and distort economic activity.
Although some previous discussions around taxation in and around Second Life (and other commerce based virtual worlds like IMVU) haven’t amounted to much, having an article like this published in a prestigious law journal makes it a lot more likely that the U.S. Congress will take some action on this issue in the near future.
Thinking about the nightmare of trying to figure out how to collect and remit taxes in a global micropayment environment where the buyer and seller have no idea of the legal jusidiction of either party boggles my mind. To paraphrase President Obama that’s way above my pay grade.
(Tip: TaxProf Blog)
oh good lord. That would be disastrous and would put most small merchants out of business.
I am definitely not going to deal with the hassles of sales tax reporting for the small profits I’m making. It just wouldn’t be worth it for anyone but the larger merchants
What’s funny is that any other online purchase is, provided you’re outside the website’s state, completely free of sales tax. I wonder if anyone brought that up to Lady Yale up there.
As far as I’m concerned, I already pay a sales tax when I acquire Ls that cost more to buy than they do to cash out. Just because the Lindens keep that difference doesn’t mean I ought to be responsible for where it goes.