Lots of companies have been showing up in Second Life over the past few months. Now Reuters has set up a news bureau there.
And don’t be surprised if you see the IRS open a branch office there soon:
“Right now we’re at the preliminary stages of looking at the issue and what kind of public policy questions virtual economies raise — taxes, barter exchanges, property and wealth,” said Dan Miller, senior economist for the Joint Economic Committee of the U.S. Congress.
“You could argue that to a certain degree the law has fallen (behind) because you can have a virtual asset and virtual capital gains, but there’s no mechanism by which you’re taxed on this stuff,” he told Reuters in a telephone interview.
This is bad news. Once you bring taxation into the Linden Labs virtual economy, all other forms of regulation will follow. When the news broke last week about the online gambling ban, I figured that the online gambling activity that takes place in Second Life would be exempt, seeing as it’s only virtual money that changes hands.
But if the tax authorities start treating Linden Dollars like real money, that’s a big game over. And it isn’t just gambling. Right now, I can go into Second Life and start my own Building and Loan to compete with the branch bank that Wells Fargo has opened there. Or I could hang out my shingle as a loan shark and hire werewolves to enforce repayment for me (within the rules and behavioral norms established by the Second Life community, of course.) The 2L economy is a big playground where people are free to give new and weird models of commerce a try. But that kind of environment only works if with play money.
The rule should be that it’s play money while it’s in Second Life, and its taxable and subject to regulation when you cash out. Fat chance, though. The success of the virtual economies is going to kill them. Virtual economies are likely to be replaced by heavily regulated electronic economies that are every bit as real as the ones in the “real world.”
That’s too bad.