Will Gold Farming Become Taxable?
Selling virtual items and currency for real world money certainly isn’t anything new for MMORPGs. While less common in Iron Realms games, it occurs every day in large games like World of Warcraft. The reality is, gold farming is a billion dollar industry.In the spring of 2011, the UK Guardian gave a first-hand account of prisoners forced to play games like WoW around the clock. Their characters built up credits the guards then traded for real money, at the tune of $500 or better per day...or nearly $30,000 per year! As someone who plays free games produced by Iron Realms, I could live quite comfortably on that kind of salary. And if I lacked a conscience, it could happen! Prisoners not meeting their quota can expect harsh retribution from the prison guards. As one prisoner subjected to long shifts of gold farming stated, “If I couldn’t complete my work quota, they would punish me physically. They would make me stand with my hands raised in the air and after I returned to the dormitory they would beat me with plastic pipes. We kept playing until we could barely see things.”
Overseas gold farming is so out of control that some countries are having trouble controlling it. Unlike sweatshops, which fall under the scrutiny of laws regulating things like overtime pay, minimum wage, and child labor, exporting virtual goods is completely legal -- even to European countries known for stricter policies. Another contrast between tangible and virtual industries is that gold farming yields a bigger profit margin! According to a Massively article, an impressive 98 cents from every dollar made from gold farming stays in the nation where the work took place, compared to 7 cents per dollar made from the coffee industry. Not to mention, sitting at a computer is a much safer job for many low-skilled, uneducated workers than manual labor such as mining or real farming.
Gold Farming Companies
Just like with tangible industries, China’s growing economy lends its influence to virtual industries also -- even gold farming. Smaller commercial ventures find themselves taking a backseat to larger enterprises employing cheap labor -- like prisoners. An article from Discovery News reported that one Eastern European college student built up a small company between 2010 and 2011. It employed nine people. Richard Heeks, director of the Center for Development Informatics at the University of Manchester in the UK and an expert in virtual economics, said that “competition from Chinese gold farms -- just like producers of real goods -- recently forced the Eastern European student into virtual bankruptcy. In the coming years, big multi-player game companies are starting to cut these middlemen out of the equation by selling credits to players instead charging subscription fees.”
Countries are catching on to the practice of gold farming and taking action by passing laws taxing the sale of virtual goods paid for with real money. The sale of earned income from virtual items is taxable in Australia. China banned the sale of real goods using virtual currency, but not the reverse. Korea ruled that exchanging virtual currency for real money is legal, but subject to taxation. Americans get off a bit easier, though! In its National Taxpayer Advocate's 2008 Annual Report to Congress, the Internal Revenue Service expressed concern that virtual worlds are a growing source of tax noncompliance...but currently has no laws to deny or tax the sale of one type of economy for the other. They’re missing out on a golden opportunity. One blogger reports that over 16 million people are estimated to have active subscriptions to Internet-based MMORPGs. And that doesn’t include the players who avoid subscription fees altogether by playing free games online, like the ones produced by Iron Realms.
What are your thoughts on the topic? Your comments are welcome in the spaces below!
Author: Anne Livesay