Switzer and Switzer, Taxation of Virtual World Economies: A Review of the Current Status

Switzer, Jamie S. and Ralph V. Switzer.  "Taxation of Virtual World Economies: A Review of the Current Status." Journal of Virtual Worlds Research 7, no. 1 (January 2014).  http://journals.tdl.org/jvwr/index.php/jvwr/article/view/6292 (accessed January 10, 2014).

The authors, Jamie Switzer (Journalism - Colorado State University) and Ralph Switzer (Business - Colorado State University) examine in this article the current state of affairs regarding the taxation of virtual income in online game worlds (and certain other online worlds such as Facebook and Second Life).  They assert that in spite of certain difficulties in the collection of these taxes that "virtual transactions are already subject to taxation under current U.S. law" (1).

Key to any discussion of taxation in online economies is what transactions to tax.  Should all transactions be taxed or only those that involve the exchange of real currency in exchange for virtual goods [RMT or real money trading]?  Further, what is a transaction?  Would a World of Warcraft character who mines ore for sale to another player on the auction house owe taxes on that transaction?  Does it matter that Blizzard Entertainment, the operators of World of Warcraft, expressly forbid RMTs in their terms of service?  What about non-games like Lindon Labs' Second Life where mechanisms are included for the transfer of funds in and out of 'game' and where several people are reported to have made extensive real world fortunes through in world activities?

The authors performed an extensive literature review and examine these issues in depth. They present the literature in several thematic sections such as the "Taxing of Virtual Worlds" and the "Current State of Virtual Economies".  These literature reviews are then used to inform their conclusions section.  As would be expected, an extensive bibliography is attached that provides a snapshot of the current research.