Over at CNet News.com today, Daniel Terdiman reports that “IRS taxation of online game virtual assets [seems] inevitable”:
That’s because game publishers may well in the not-too-distant future have to send the forms–which individuals receive when earning nonemployee income from companies or institutions–to virtual world players engaging in transactions for valuable items like Ultima Online castles, EverQuest weapons or Second Life currency, even when those players don’t convert the assets into cash. Most governments are only beginning to become aware of the substantial economic activity in online games, but the games’ rapid growth and the substantial value of the many virtual assets changing hands in them is almost certain to bring them into the popular consciousness. “Given growth rates of 10 to 15 percent a month, the question is when, not if, Congress and IRS start paying attention to these issues,” said Dan Miller, a senior economist with the Congress’ Joint Economic Committee, who is also a fan of virtual worlds. “So it is incumbent on us to set the terms and the debate so we have a shaped tax policy toward virtual worlds and virtual economies in a favorable way.”
My problem with all this is not just that I am a rabid, anti-tax libertarian. It’s that we’re putting the cart before the horse in the sense that we haven’t even figured out what sort of governance structures will be imposed within most of these virtual worlds yet. Despite that, we’re already having a discussion about how “Meat Space” (tangible world) taxes should be to applied cyberspace worlds. Sounds like old fashion “taxation without representation” to me.
We first need to figure out a lot of other basic things about virtual world governance before rushing to impose real world taxes. What sort of property rights will apply? What about copyrights? (See my previous essay on that issue here). How will contracts be enforced? Etc, etc. And, to the maximum extent possible, these things should be decided by the Net-izens living in those virtual worlds before any Congress critters or IRS bureaucrats try to impose taxes on virtual worlds they likely have never even visited.
Last week I was in New York City for a hearing on ticket scalping (I prefer the nice term “reselling”) and the impact scalping (resale) laws have on online businesses like eBay, StubHub and RazorGator. My colleague, Steve DelBianco, testified at what turned out to be an interesting hearing on what’s really best for the consumer (see his blog post on this). I’m happy to say that most agreed that a free market for secondary sales of tickets is in a consumer’s best interest.
Gone are the days of having to go to the event and purchase a ticket from some gruff, shady character. Sites like eBay and StubHub offer a safe (and often guaranteed) experience for buying and selling tickets. But in case you haven’t noticed, venues and teams will often prevent these resales–just look at the small type language on the back of your ticket next time you’re at a Yankees game (which, thankfully, won’t be until next year!). The Yankees have already “evicted” 10 or so season ticket holders because they resold their tickets (mostly on eBay). These restrictions are on single-game tickets as well.
So here’s where the libertarian in me is somewhat conflicted. The ticket is legally a license, so it is a contract that I willfully entered into. If the Yankees want me to only use THEIR approved exchange to resell my ticket, I agreed to that. BUT, don’t most people assume their ticket is personal property, to give or sell to whomever at whatever price? Perhaps this is a property rights issue.
Regardless, here is the testimony that my organization presented last week. And if you’re really interested in how corrupt the entertainment and Broadway ticket sales market is in NYC (something that an open and transparent online market would help), check out this Spitzer report.
I earlier described why the Unlawful Internet Gambling Enforcement Act of 2006 (the “UnInGEn-ious Act”) will put the domestic financial services industry at the disadvantage of overseas competitors capable of escaping U.S. regulations. How will Mastercard, Visa, and their ilk react to the resulting loss of business? More likely than not, by seeking shelter in one of the UnInGEn-ious Act’s safe harbors. The result: legal Internet gambling will increase in the U.S.
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With the Unlawful Internet Gambling Enforcement Act of 2006, Congress took aim at Internet gambling, pulled the trigger, and shot the domestic financial services industry. The regulatory bloodshed might temporarily put off American consumers of Internet gambling services. Very quickly, though, foreign financial services will step into the breach. More likely than not, Internet gambling will continue unabated. Federal lawmakers will have done little more than won a sound-bite for the upcoming elections and encouraged the widespread use of Internet-based financial systems capable of wholly escaping U.S. control. Hence my moniker for the new law: The UnInGEn-ious Act.
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The Internet tax issue is not as hot and sexy as it was a few years back, but we can still give it a big KISS (Keep it Simple Stupid). Yesterday’s hearing of the Senate Finance Committee shows that there is still some thunderous passion over taxing the ‘Net. The hearing–consisting of two full panels of witnesses, one devoted to sales tax and another toward the business activity tax–featured state tax collectors and offline companies versus online companies and direct marketers. The legislative thrust of the one panel related to sales taxes is S. 2152, a bill introduced by Senator Michael Enzi.
The hearing revealed that the Streamlined Sales Tax Project (the SSTP, an attempt to make sales taxes more easily collectable by out-of-state sellers), just isn’t simple enough. In particular, I’ll direct TLF readers to the informative (and anti-SSTP) testimony of George Isaacson, tax counsel for the Direct Marketing Association.
The uninitiated can easily be caught up by all the different arguments advanced by proponents for the SSTP. Supporters say that a system that allows remote sellers to evade collecting sales tax from consumers hurts state tax revenues and is unfair to offline “Main Street” retailers that may have higher prices because they do have to collect the tax. But fortunately, while this high-tech debate may be fashioned by the seemingly borderless jurisdiction of digital networks, the old fashioned U.S. Constitution has something to say about this form of interstate commerce. A little background is required though.
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I find this eBay versus Google battle over payment services quite interesting. In case you missed it, eBay stuck it to Google this week by notifying the world that it would not allow Google’s new “Google Checkout” payment service to be used to clear transactions on eBay. A lot of people are up in arms about this claiming that eBay has excessive market power and that antitrust actions need to be considered (or at least threatened).
But I think there’s a different way of looking at this scuffle.
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What do contact lenses, wine, and caskets all have in common? Online sales of these products have been heavily regulated online, often because bricks-and-mortar incumbents have lobbied for laws that protect them from Internet-based competition. New research on this topic will be presented at a daylong symposium presented by the Mercatus Center at George Mason University, in collaboration with the George Mason University School of Law. Legal and economic scholars will present papers on topics such as the current status of legal and regulatory barriers, their impact on consumers, and their implications for competitive federalism. Ken Starr will give the keynote address. Check out the full agenda after the jump.
The event will take place on Wednesday, May 24th, 8 a.m. to 5 p.m., at the George Mason University Arlington campus. For more information and to RSVP, visit the event page.
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Here find my comments on the dangers of “net neutrality.” Who even remembers video dialtone? “Open video services.” And other similar regulatory ventures.
“Open” sounds awful democratic. But when it is a regulatory mandate it quickly devolves into something navigable only by an elite.
The UN’s World Summit on the Information Society ended today with the U.S.–or more precisely Internet users around the world–coming up winners. Efforts to impose international controls over Internet governance were firmly beaten back. Instead, the summit only called for creation of an advisory “International Internet Governance Forum,” with no binding authority. The new forum will meet next year in Greece.
Efforts to impose international control over the Internet, of course are unlikely to go away. UN Secretary-General Kofi Annan said as much earlier this week, stating that the Tunis agreement highlights the need for more international participation in discussion of Internet governance issues. The question is how to achieve this. Let those discussions continue.” For this reason, the new forum bears watching, lest it morph into an international regulatory body.
Still, its hard not to be pleased, and relieved, at this week’s outcome. The quote of the week goes to Commerce Department telecom chief Michael Gallagher, who said: “The Internet lives to innovate another day because of our combined efforts here.”
Kudos for the outcome are due to the Bush Administration for standing firm on this critical issue. Administration policymakers –including Gallagher and state department official David Gross–recognized early the dangers of globalizing Internet governance, and stood firm in their opposition.
Thanks also should go to the government of Tunisia, who hosted the conference. Its efforts to blot out unpleasant dissent during the conference–which included the blocking of websites from the country–did far more than any speech or policy paper to highlight the critical importance of protecting Internet freedom.
(For some interesting takes on the Tunis summit and its implications, check out the discussion held at The Heritage Foundation yesterday on the subject–featuring Sen. Norm Coleman, Rep. John Doolittle, fellow TLFer Adam Thierer and The Heritage Foundation’s John Tkacik.)
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.