• Reuters, Tuesday, October 17, 2006 11:30 AM

If there are real, thriving virtual economies, it means people are making money in massively multiplayer online role-playing games, like Second Life and World of Warcraft. That means the U.S. government has every right to tax those earnings.

"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," said Dan Miller, senior economist for the Joint Economic Committee of the U.S. Congress. "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."

The fact that Second Life is growing at 250,000 users per month, and more real money is being spent each day, means lawmakers and regulators can no longer ignore it. In Second Life, players buy property and interactive products and services for their avatars, or online personas, to enjoy. Up to $500,000 in user-to-user transactions take place every day, and the Second Life economy is growing by 10 percent to 15 percent a month.

"Ownership, property rights, all that stuff needs to be decided. There's just too much money floating around," said Sam Lewis, a game designer. "The tax laws don't know how to behave because these are virtual items: ones and zeros on a database we're allowing you to play in."

While any earnings converted into U.S. dollars can be considered taxable, it's far less clear what should be done about income and capital gains that never leave the virtual economy.

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