Taxman contemplates virtual world earnings

How would you feel if every time you levelled up in your favorite game, you had to pay the government for the privilege?

An article on the BBC News web site this week examines this troubling possibility. Numerous governments around the world, including Sweden, China, and South Korea, are considering whether goods their citizens acquire in virtual worlds should be taxable.

It's not as unlikely as it sounds. Players often sell their virtual possessions or characters to other players for real money, in transactions that are potentially already covered by existing tax laws. Although this behavior is discouraged in most games, some -- like US-based virtual world Second Life -- actively encourage it, even to the extent of sanctioning the direct exchange of game currency for real money.

But what happens when you exchange in-game currency for in-game items? What would happen if that was ruled a taxable transaction? In the words of University of Essex researcher Richard Bartle, players would be upset. "If you were taxed every time you bought a property in Monopoly, you'd be annoyed. The same goes for people in World of Warcraft," he tells the BBC.

That hasn't stopped the Swedish government from ruling, back in April, that in-game transactions are indeed taxable in theory. No attempt has been made to enforce the ruling yet, but as the popularity of online gaming continues to grow, how much longer will governments be able to keep their hands out of the till?

We just have one question: if the IRS is going to tax our virtual goods, will they start accepting payment in in-game currency?

Previous: Wii games overpriced, says study
Next: NBA teams use video game to evaluate talent

MORE ON YAHOO! GAMES:

HOLIDAY GIFT GUIDE 2008 PLAY BEJEWELED TWIST