In working my way through the Anxieties Canary lists in her article I get to the tenth, taxes…

Like A Storm

In America the IRS is the Internal Revenue Service. It is the taxing agency of the American government that has its own courts and law enforcement officers.  It also has over 1,977 forms, 90,000+ (2015) employees, and 74,000 pages or 3.7 million words of tax law that it enforces (Reference) without regard to the Constitutional principal of Due Process. 

So, that people are worried when Linden Lab says the Project Sansar^® financial model will be more of a TAX thing than land fees it isn’t surprising Americans freak. But, consider how things are in SL now and how we have been told they will be in Sansar.

Ebbe is talking often about lowering the barriers to entry for Project Sansar. One thing they consider a barrier in Second Life™ is land cost. In place of high land costs Ebbe is talking about a different financial model that primarily will be a sales tax.

A sales tax is collected post-sale. In SL that collection happens at the point-of-sale (POS) in the marketplace, actually before we get our hands on the money. Tax is computed by the marketplace servers and deducted from the sale and the remainder is credited to our account. No fuss no mess. This is the tax we will see in Sansar if nothing changes. But, the tax will be on all sales in Sansar, not just the marketplace.

Income tax is much more complicated as ‘income’ has to be defined. Also we get our hands on the money first and then pay the taxing agency. That too creates more issues that have to be defined, handled, and enforced. I suspect this is the complicated type of tax people most fear. I also think it is the least likely tax to be imposed in Sansar. However, when we take money out of SL or Sansar it then becomes part of our RL income and subject to all the IRS laws.

Having a Sansar sales tax and low property costs does a number of things for Sansar users. A basic business principal is business hates unknowns and thrives in stable environments. It is a risk thing. With sales tax the rate can be published and businesses can calculate their costs before putting their capital at risk.

Having low land cost allows a business to lower their start up cost. Consider. A new mall or shop opens. It takes time for people to learn it is there. The business has to carry the cost of products, land, and store until enough people find the shop and start buying goods to cover the monthly costs. Only then is there a cash flow. Before that all costs are paid from the owners pocket/capital. It is a race to get sales before the money runs out. A low land cost provides a new business an easier startup.

We don’t know exactly how tax collection will work for in-world sales. Will they emulate RL and require businesses to use a services/products sales API? I think there is a good chance. Will all transactions involving an exchange of L$ be taxed? I think that would get a lot of blow back. Whatever, we probably won’t know until the Lab thinks they have it all figured out.

Remember. The Lab tracks every L$ transaction. So, they know exactly how much money is being spent on goods, rent, services, and ‘skill’ games. They can make a precise analysis of what people are doing and project that into what is likely to happen in Sansar. The unknowns are how many will join Sansar and how quickly the Sansar economy will grow.

Conservative estimates of growth and popularity may mean they set the tax higher than needed. Or they may be overly optimistic and set them too low. It will be a balancing act. We can’t know all their reasoning so what the tax rate will be is mostly speculation.

In real life years of experience has yielded the Laffer Curve for determining the tax rate that produces the most revenue. Whether or  not that curve works in virtual worlds is unknown. My thinking is since the curve reflects human behavior it will work for virtual worlds. Whether the Lab will use it is an unknown.

So, from an in-game viewpoint I don’t see a reason to fear a shift from the SL financial model to a new sales tax model of Sansar.

In Second Life we have to deal with the IRS and other taxing agencies in other countries. I can’t see where there will be any difference in Sansar. Linden Lab will still 1099 (1099 = a form for reporting your income to the IRS) you for money you take out of the game, SL or Sansar.

We have recently read a story circulating n the SL community of a couple being taxed twice because the Lab and PayPal both reported the same payments. So, one does need to learn how these things work. So, I can see where it could be a point for anxiety. All I can say is it isn’t rocket science. It is reasonably easy.