The play's the thing: A theory of taxing virtual worlds

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This Article looks at the potential tax issues arising from a new life activity: online role-playing games in virtual worlds. Currently, some thirty million people regularly play such games and the number is growing. Exploring the reach of the Tax Code into virtual world transactions not only responds to the potentially practical needs of millions of U.S. taxpayers, it also permits a reevaluation of core principles of income tax as they interplay with life activities in the context of twenty-first century American culture. This Article's central thesis is that while player activity in virtual worlds undoubtedly produces measurable economic value to the player, player activity that occurs solely within the online virtual world is not gross income under the law. The Article argues for a "cash out" rule. Players whose added wealth consists solely in "units of play" should not be taxed unless and until they convert those units into cash or property that is something other than a unit of play. Conversely, when the play ceases, taxation begins. The resulting line-drawing difficulties have nothing to do with player intent nor with "fun" and "games." Instead, the issue presented is as old as the Tax Code itself: at what point does economic gain become legal gain? The new context of virtual worlds allows for a renewed exploration of how and why the legal concept of "income" differs, and indeed must differ, from the economic concept.

Original languageEnglish
Pages (from-to)1-71
Number of pages71
JournalHastings Law Journal
Issue number1
StatePublished - Nov 2007


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