Update on Taxation in Virtual Worlds
Looks like the Joint Economic Comittee has made the very reasonable recommendation that virtual transactions shouldn't be subject to real-world taxation:
Based on existing law, if an individual generates cash income in U.S. dollars from transactions in virtual economies, the question may arise whether a tax is due on that real-world income. However, if the transaction takes place entirely within a virtual economy, then it seems there is no taxable event. Such distinctions should be addressed and resolved in a common-sense manner. Clearly, virtual economies represent an area where technology has outpaced the law. The goal of the forthcoming JEC study is to help lawmakers understand the issues involved and head off any premature attempt to impose a tax on virtual economies.
I recently made a similar suggestion. Read all about the JEC recommendation at the TaxProf Blog (Hat-tip: what's his face.)