In a trend that some people love, and other hate, the world governments are starting to alter their tax codes to take into account virtual, in-game transactions. While most of the proposed and already in effect taxes are only triggered when virtual goods are traded for real world cash, some governments are starting to wonder if transactions where virtual goods are traded for virtual currency should be taxed as well.

Those ideas do make some sense in virtual worlds, such as Second Life, where it's not uncommon for virtual real estate moguls to make several hundred thousand dollars from virtual transactions. They sell or rent virtual land for Linden dollars, a virtual currency, which has a direct exchange rate to the US Dollar. However, taxing transactions at the time of sale in virtual currency is problematic even in Second Life. New characters are given an allowance of Linden dollars. Does that mean these people should be taxed just for playing a game?

"I think it's an extraordinarily dangerous development," said Prof Castronova.

"It's as if every time I played soccer in my backyard and scored a goal, I would have to pay the government three euros," he said. "It takes away the game's contribution to human happiness."

Richard Bartle, a multi-player game pioneer and researcher at the University of Essex, says in-game taxes would spoil the fun.

"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."

While games like World of Warcraft, whose currency has no direct correlation to a real currency, are probably safe from taxation, the US and Sweden both agree that games like Second Life with exchangeable currency are - theoretically - taxable. There's no plans to do so at this time, but it could be in the future.

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Last Updated: Mar 13, 2016