Passage A is from a source published in 2004 and passage B is from in 2007.
Passage
Millions of people worldwide play multiplayer online games. They each pick, say, a medieval character to play, such as a warrior. Then they might band together in quests to slay magical characters striding across a Tolkienesque land.
The economist Edward Castronova noticed something curious about the game he played: it had its own economy, a bustling trade in virtual goods. Players generate goods as they play, often by killing creatures for longer they play, the wealthier they get.
Things got even more interesting when Castronova learned about the “player auctions.” Players would sometimes tire of the game and decide to sell at online auction sites.
As Castronova stared at the auction listings, he recognized with a shock what he was looking at. It was a form of currency trading! Each item had a value in the virtual currency traded in the game; when it was sold on the auction site, someone was paying cold hard cash for or skinning animals to sell their pelts, they were, in effect, creating wealth.
Passage
Most multiplayer online games prohibit real-world trade in virtual items, but some actually encourage it, for example, by granting in their creations.
Although it seems intuitively the case that someone who accepts real money for the transfer of a virtual item should be taxed, what about the player who only accumulates items or virtual currency within a virtual world? Is “loot” acquired in a game taxable, as a prize or award is? And is given that the economies of some virtual worlds are comparable to those of small countries.
Most people’s intuition probably would be that accumulation of assets within a game should not be taxed even though income tax applies even to noncash accessions to wealth. This article will argue that income tax law and policy support that result. Loot acquisitions in game worlds should not be treated as taxable upon sale. Moreover, in-game trades of virtual items should not be treated as taxable barter.
By contrast, tax doctrine and policy counsel taxation of the sale of virtual items for real currency, and, in games that are intentionally commodified, even of in-world sales for virtual currency, regardless of whether the participant cashes out. This creating a tax shelter for virtual commerce.
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