Taxing Your Lewts: It Begins

July 02, 2007

Via Kotaku.com comes word that South Korea is starting to tax online game profits earned through RMT (real money transactions). In other words, if you've got yourself a profitable business selling virtual items for real money, you'll owe a little chunk to the government.

The idea of taxation for virtual profits has been floating around as a concern for years. Way back in 2003 I interviewed leaders in the MMO community and it was already a hot-button topic.

But there are some interesting things to note about South Korea's policy. For one thing, you have to be earning between the equivalent of $13,000-$26,000 (U.S.) per year before you're taxed. That limits this policy to businesses or to players who are serious about converting game-time into cash -- it would have no impact or your average player or even someone who, say, offsets their school tuition by selling off a couple grand worth of items over the course of a year.

Another noteworthy feature about the new tax law is that it only kicks in once you've converted your items into real-world cash. A lingering question when it comes to taxing your MMO profits is if you have to pay for in-game assets. Example: if you invested $200 into Second Life, and bought property that has grown to be worth $20,000 but still only exists online, would you have to report that as income? According to the Korean law, no, not until you sell it off for real money. Will that become the new standard?

Finally, I also found it interesting that anyone making over $26,000 (U.S.) per year would need to apply for a business license. This may be an effort on the part of the South Korean government to police the often less-than-legal labor practices of many gold-farming organizations. We'll see if it can make an impact.

Meanwhile, there's no movement here in the 'States to tax virtual goods, as our backward Congress still thinks "Second Life" is what you get after your first Pac-Man dies.

      -Fargo

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