"Second Life" and the Virtual Buck
7 January 2007
Second Life, the popular on-line virtual world, has come to be such a
phenomenon that it now offers its own legal problems - many of them stemming
around one avatar called Anshe Chung.
Anshe Chung is the first millionaire of the virtual world. This means that all
the linden dollars she earned through various trades and deals within Second
Life can be transferred into real money outside of Second Life to a net worth of
well over $1,000,000. This, in itself, has people asking questions about
taxation of this virtual money.
For years people have used PayPal, which trades in real money like a virtual
bank, and other on-line
banking methods, these are still recorded in US dollar amounts. In Second
Life you buy Linden Dollars. These virtual bucks can buy anything from a new
shirt for your avatar, to wings, or a vacation
house on your own private island. Or you can use Linden Dollars to start
buying and trading virtual stocks, develop land and sell it, and in so doing
earn yourself a tidy sum, just like Anshe Chung.
Second Life continually shifts the exchange rate for Linden Dollars to real
dollars according to various criteria, trying to in effect create a virtual
currency. While other systems like IMVU and There.com have offered this service,
none have done it to such degree as Second Life.
By carefully balancing new sources of linden dollars with linden dollar sinks
they try and uphold a steady currency of about L$250 to L$350 to $1.
Now, with Anshe Chung and others making big virtual bucks law makers, and
especially IRS, have taken an interest in their doings.
They already tax income from linden dollars that have been cashed out. Now they
are considering taxing assets built up within the world of Second Life, and
perhaps WOW and other virtual worlds with monetary systems.
How would such a system work? Would you have to file a virtual tax report? What
of those from other countries who also live within Second Life?
Could they treat Second Life as another country and leave it an autonomy of its
own? Linden dollars can not be used outside of Second Life, though people do
sell Linden dollars on Ebay and other websites for real dollars. Virtual real
estate, while traded within the virtual world, can not enter the real world
economy. It is a system of its own, separate from the real world. It is much
like the Euro, you can't spend a Euro in the US any more then you can spend a
Linden dollar.
What effect will a tax system have on Second Life?
When implementing their own brand of taxation to encourage players to keep down
the clutter of useless objects players had a protest to unfair practices. The
taxation for Second Life was created for a valid reason, to clear unused and
unnecessary items and keep price of items from dropping. Players did not protest
the actual tax, but the unfairness of taxing some items at higher rates then
others.
Even more of interest to IRS then users turned millionaire are the actual
well established businesses who make a presence in game and trade in Linden
Dollars like Harvard University who sponsors classes in game, and Major League
Baseball. Other businesses are jumping on the bandwagon, providing shops where
you can buy clothing for your avatar and link to websites to buy actual clothing
and items and have it shipped to your home.
The real question will be what effect this will have on the real world economy.
All these new taxable incomes will definitely have an impact.
Also, what will happen to the casual gamer who just logs into Second Life for a
bit of fun? What impact will it then have on Worlds of Warcraft, and other
MMORPG's who's virtual income is regularly traded in the real world?
As the virtual world gains more significance among gamers and non gamers alike,
these questions among many others will finally have to be answered.
For more information check out these links:
secondlife.reuters.com/stories/2006/10/15/us-congress-launchs-probe-into-virtual-economies/
research.yale.edu/lawmeme/modules.php?name=News&file=print&sid=1222
biz.yahoo.com/fool/061016/116103313134.html?.v=2
blogs.zdnet.com/BTL/?p=3404