Taxing and Regulating Virtual Worlds

MMORPGs (massively multiplayer online role-playing games) are internet adventure games with no real end. The point of most of these games is to quest for experience to gain skill levels and explore vast virtual worlds filled with monsters and other players.


In some of the more popular MMORPGs, like World of Warcraft, you can learn profitable in-game trade skills, gather valuable resources from the land, and participate in functioning economies with in-game auction houses. However, even in a virtual world of magic and mythical races, you aren’t safe from the long arm of government.

Over the past 15 years or so, virtual property and income in online games have attracted the eye of governments for taxation. When virtual money and items become traded with real money, then monetary value is assessed to those items. There is currently a black market for in-game currency and items, traded online for real money.

Governments are looking at ways to justify taxing virtual items because they now have real-world value, even if they exist only on a server somewhere. With this inevitable tax comes intrusive and overbearing regulation. More bureaucracy and less freedom; that’s always a good thing, right?

Governments such as China, Britain, South Korea, the U.S., and Australia have considered the virtual world as the next step in levying property and income tax. In fact, Britain already imposes a VAT tax on the rent and sale of virtual property for the game Second Life. Not to be outdone, the U.S. Congress recently reconsidered its position on taxation of virtual items and income. Back in 2007 Congress was researching the online economies of World of Warcraft and Second Life:


The JEC [Joint Economic Committee of the U.S. Congress] statement said: “Clearly, virtual economies represent an area where technology has outpaced the law. The goal of the forthcoming JEC study is to help lawmakers understand the issues involved and head off any premature attempt to impose a tax on virtual economies.”

Note the statement: “premature attempt to impose a tax.” That doesn’t say they don’t intend to tax; it says that they eventually want to try.

Virtual property and income legislation is the camel’s nose under the tent for more government control by necessitating regulation and enforcement in virtual worlds. What happens when they extend their regulation to issues outside of enforcing tax compliance?

Here are a couple of examples of breaking the law in regard to virtual games: account hacking and identity theft. Both are traditionally handled outside of the game because they’re considered actual crimes. However, once government is involved in any aspect of virtual worlds, a question of jurisdiction is raised.

Right now, in-game “crimes” are handled by game companies at their own discretion. In-game crimes are usually defined as petty pranks or breaches of terms-of-service agreements. If players begin to appeal to the government for in-game incidents, then government will have to decide what constitutes actual crimes because they would be indirectly involved in game regulation.


Here is a pretty common prank that is currently resolved in-game by filling out a complaint ticket:

A player (griefer) climbs his character onto a rooftop using a game exploit where no one else can get to him. He begins his hunt for lower-level players and spots … you. Then he proceeds to “melt your face” from afar. While you’re looking around trying to find him, your character dies. You run your ghost back to your dead body, which will be lying under the aforementioned killer, who is now dancing on your corpse. You resurrect and he kills you again. You run back and resurrect, and he does it again. This continues for about 20 minutes or so or until you give up and log off. It’s also known as corpse camping.

If government was involved, then that annoying corpse camper could be facing real charges of harassment and possibly mental anguish. (I’ve read some pretty heinous meltdowns from people being “griefed.”) No matter what the victim thinks is suitable punishment, jail time or massive fines wouldn’t fit the crime.

A good example of keeping jurisdictions in perspective comes from the article “Global Gaming Crackdown” in Wired:

The government lets referees police behavior in a hockey rink that would normally be the purview of local prosecutors. (Try high-sticking your mail carrier to experience the difference.)


Considering that regulation and bureaucracy never get smaller, let’s follow that idea of ever-expanding government even further into the virtual world:

If the virtual world is taxed like the real world, then it will eventually be treated more and more like the real world. Maybe a player’s warrior doesn’t need three swords. Let’s cap him at two and tax the third. Why stop there? If he can afford so much gear, why not redistribute his in-game wealth to other players who don’t have time to earn enough in-game money to buy good gear? I’m sure there’s a voting block online who would appreciate government kickbacks for being “victims” of having very little time to play.

I’d venture to say out of the eleven million Americans playing just the game World of Warcraft, most of them are adults and can vote. According to a Pew study, over half of American adults play video games.

Being an adult, you should know better than to make jokes about someone’s race, especially jokes about the gnome race. No one will tolerate that hate speech. You should be banned from your account for a month — or, better yet, fined.

Played too much this week? The government should cut you off. China already does this for minors: after a certain point they get in-game warnings and then the game switches off. Parents obviously aren’t qualified to monitor their kids online.


Speaking of your kids online, those little crumb crunchers are usually the richest people in virtual worlds because they’ve got time to play the most. You better check their inventory of “phat loot,” because you may be taxed on it someday. After all, it is your credit card they’re using for their game subscription, right?

Does all of this supposed regulation sound ridiculous? Just take a look around in the “real world.” It’s already happened. Why not make the leap into the virtual world and harass people there too?


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