Virtual Taxes: The Next Frontier in Virtual Property Rights in On-Line Gaming?

The American Lawyer reports on the fascinating legal implications of virtual property rights in on-line gaming: On-line Games' Worlds Imaginary -- But the Property Isn't:

Years from now, it may be that "Second Life" could be as prominent on bar exams as contract law. This isn't a prediction of a New Age approach to torts. "Second Life" is an online role-playing game with dynamics that could draw U.S. law into virtual worlds. The game created a lot of buzz at the recent State of Play II: Reloaded Conference, co-sponsored by New York Law School and Yale Law School.

The game's developer, San Francisco-based Linden Lab, rocked last year's conference by granting players intellectual property rights to their virtual creations. Most game developers, such as Electronic Arts Inc. and NCsoft Corp., insist that all tools and characters created in digital worlds belong exclusively to the company. "Second Life" players, in contrast, do own the characters and objects they construct. Players can also use the game's scripting language to write computer code that alters what their creations can do.

The line between virtual worlds and reality is already hazy for online games, such as "Ultima Online" and "EverQuest." Players trade $880 million worth of virtual goods each year using third-party Web sites or Internet cafes that match buyers and sellers, according to Stephen Salyer, the president of IGE Ltd., an online currency and property trading site. Participants use credit cards and the electronic payment system PayPal. Typically, the buyer requests a meeting time in the game's virtual bazaar, notifying IGE of his character name. Similarly, eBay currently counts more than 10,000 virtual items for sale....

U.S. case law to date doesn't provide a good road map for potential litigation stemming from disputes [over virtual property rights]. But some foreign courts have begun to accept the notion of virtual property. Last December a Beijing court ordered the restitution of one player's stolen virtual weapons. Given that the U.S. takes a much stronger stance on the idea of property than the People's Republic, it's not hard to imagine such claims reaching American shores -- and soon.

Nice place. What are the taxes?