Only two things in life are certain: death and taxes. Or so the old saying goes. Runescape and other MMORPGs are apparently not life, as in them death is no more than a minor inconvenience and there are no taxes. At least not yet.
Recently the Wall Street Journal reported on the phenomenal success of RuneScape. There have been articles on a couple of high-level economics websites discussing the economies of online games and their relationship to real world economics. Suggestions have been made for using online games as economic modeling tools. All this publicity has resulted in some overpaid "policy wonk" proposing that income gained in online games should be subject to real world taxes. The IRS, needless to say, finds this proposal "interesting ". This is a bad sign. It's always a bad sign when the IRS gets interested in something or someone.
The theory is that because online game money, goods and services can be bought in the real world, they are valid targets for highway robbery taxation. The game that precipitated this theory is Second Life, which is a game that, like EverQuest, Maple Story and a few others, allows real world trading of online assets. There are established real world exchange rates for goods and services in Second Life, and it is this that gave the theorist a mechanism to come up with his theory.
Needless to say, Your Humble Editor is in total disagreement with this theory. I'm not going to bore you all with an erudite philosophical discussion of the morality of taxation, at least not unless you ask me to, that's not appropriate to this column. Instead I'd like to look at the practicality of such a scheme and the effect it could have on MMORPGs. Starting with the obvious one, I'd estimate that up to 50% of all players are minors and as such don't have to pay taxes. Thus any collection agency has to be able to identify players who are eligible to pay taxes on any income gained. With some of the population being taxed and some not, there will be a huge financial imbalance between players. Those who don't pay taxes will have a strong financial advantage over those who do.
Secondly, it is the US IRS that's looking in to doing this (though others may well follow), and thus players who are not eligible to pay US taxes would also have to be eliminated from the tax base. US-based adults, who are probably the largest segment of Jagex's P2P player base, would be the ones at the greatest disadvantage. Then there's the whole issue of collecting from non-US based companies such as Jagex. Jagex is under no legal requirement to report anything to the US government, and I would hope that they would refuse to cooperate with such a scheme on basic principle.
Actually calculating and collecting the amount of taxes due would be a phenomenally difficult task. Chances are the IRS would issue regulations demanding that the companies report player incomes to them – this could easily cause the companies to either have to raise the prices for participation in their games (to cover the cost of reporting) or just quit the MMORPG business all together.
Even identifying the tax-eligible players would be a mammoth undertaking. Jagex asks you to declare that you are 13 years old or older when you start a new character, but doesn't require any other ID for F2P. For P2P, there are several payment options that do not require ID, such as paying by money order. There is also no requirement for credit card payments to be made by the player – Jagex rules state that one can only pay for oneself or members of one's immediate family. So parents can pay for their children to play, or one member of a couple can pay for both. According to Jagex Customer Support, a fiancee (or fiance) is also an "immediate family" member. Therefore there's not necessarily any easy direct correlation between the player and the person who pays for the account. Can you imagine what a task it would be to sort this out? Would you be able to get proper ID and tax eligibility on the millions of active accounts, never mind the inactive ones? How would Jagex know that the players weren't lying about their ages – adults claiming to be under 18 instead of kids claiming to be adults – or claiming that the account belonged to their children instead of themselves? It would be a complete nightmare.
Next up: how would you calculate the value of player assets? There are 3 values which items in RuneScape have: low level alchemy, high level alchemy (both of which are tied to shop values) and the going rate between players. If you sell a party hat to a store, or accidentally alch it, you get about 1GP. If you sell it on the open market the price is in the millions. The IRS, would naturally want your assets valued at current market rates, not their alchemy values. Would you be able to get a tax credit if you lost money in the game? Suppose you were foolish enough to go into the Wildy and get PK'd while wearing your best dragon armour, a purple phat and carrying a whip and a dragon woodcutting axe – would you be able to claim that multi-million GP loss against your taxes?
There is one possible way that this could be avoided by Jagex at least, if not other game companies:
Rule 12 - Real World Item TradingRuneScape items must only be exchanged for other items/services within the game.
Exchanging RuneScape items for items or other benefits in other online games, real-life money or other real-life benefits is not allowed.
…It should be remembered that all accounts (and items) remain the property of Jagex at all times, and we will not hesitate to remove such items from the game if we have evidence that rule breaking has taken place.
Given that none of the players in RuneScape own anything and that there is no legal real world value for any assets a player might accumulate, there's nothing for the IRS to tax. So, for the moment we can rest easy, safe in the assurance that at least this hare-brained scheme thought up by someone with too much time on their hands (maybe they should start playing RuneScape!) will not spoil our gaming experience.
Now, if you'll excuse me, I need to write a letter to Santa. I'm hoping that I've been bad enough this year that he'll deliver me a massive quantity of coal in game – I've got some smithing to do!
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