DIABLO 3 AND REAL MONEY AUCTION HOUSE TAXES
Today we have a Guest Post from Nev of AHAddict.blogspot.com, who has been dealing with these types of online income sources for a while now. She offers a great inside perspective of the issues facing online profiteers with an international twist.
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Now before I go any further, I am NOT a taxation advisor of any description, I am merely here to tell you how I, as a British taxpayer, got involved with the US Internal Revenue Service a few years ago & how my experience may give some idea how they will tax your RMAH earnings.
For me it all started back in 2006, I signed up with the then new microstock companies. These are crowd sourced image agencies selling photographs & illustrations from 1000's of artists for just a few dollars each. Most of these companies like iStockphoto & Shutterstock are US based but initially, contributors were receiving their earnings via Paypal without reference to where they lived & that was it.
Roll forward a couple of years & I received an email telling me that they would be witholding 30% of my earnings unless I filled in the relevant US tax forms. That sounded fairly simple but the W8-BEN form requests a US Social Security Number or a US Tax Identification Number. As a British taxpayer, I obviously didn't have either of these numbers so that's when it got panicky! But not just for me - almost every contributor to these microstock agencies, based outside the USA, didn't have these ID numbers & no idea how to get one.
Many countries around the world have a tax treaty with the US which in essence, prevents a person having to pay tax in 2 countries. With a SSN or TIN, I wouldn't have to pay the US tax as I was already declaring my earnings here in the UK. After many many forum posts across these multiple agencies, it was discovered that actually, we didn't need a SSN or a TIN, we could just fill in the form as directed by the agency with reference to the relevant tax treaty sub section (royalties in our case) & that was all that was required.
But it took maybe 3 months or more for that information to filter down & across all the sites. In the meantime, some of the larger contributors had paid experts to file relevant documentation to get their TIN. This was an expensive process including fees & visits to the US Embassy in their respective countries & for smaller contributors like myself, it was prohibitively expensive for the cash I was earning.
Since then, Zazzle, Cafepress & Clickbank have also requested these forms from me so I have to assume that the IRS has been looking at these internet based, crowd sourced content sites to make sure they are reporting earnings correctly.
So how does this affect Diablo3 players? Well, my personal thoughts are that taxes are everywhere & if people are earning real life cash in any way, the tax authorities want their slice of the pie. I believe Blizzard has a disclaimer when you start using the RMAH that it is your responsibility to declare your earnings correctly to your own tax authorities, but I'm not sure that will be adequate to satisfy the US Internal Revenue Service.
I think the IRS will want Blizzard to manage & account for everything they pay out to Paypal accounts across the world & we will see Blizzard having to implement a similar system to the Microstock companies. However, if Blizzard hit the same wall of confusing tax laws, there could be very mixed messages being sent out & many lost, angry & confused players around the world.
I'm here to say Don't Panic! It's really not that bad or difficult to sort out. I've included links to the IRS forms that overseas indviduals will need to fill out. All Blizzard will have to do is request your payment details & ask you to electronically submit the W8-BEN. Hopefully Blizzard will give clear instructions on how to fill out the form but the most important part will be the detail of the relevant section of the Tax Treaty. Unfortunately, I have no idea how the IRS will categorise RMAH earnings so I can't help you there!
So that's my experience with the US taxation authorities. It was very confusing at first but soon resolved into a simple electronic form filling & submission. I hope, if Blizzard does have to follow along similar lines, that there is enough experience out there now for them to be able to make it easy from the start. It's in Blizzard's own interest to keep it as simple as possible after all - they take a cut of all RMAH fees so they will want people to keep using it!
Thanks Nev, for the great insight into your experiences with making profits internationally online from a variety of sources. I too believe that Blizzard won't be able to keep their "hands off" approach forever. Currently, Blizzard doesn't require our SSN or TIN and neither does Paypal, so technically profits on the RMAH are "off the grid" (yet they are still required to be reported). Another confusing bit for some is the myth that you need to make $600 from Diablo 3 to be required to report it in the United States. No, if you make over $600 total from all sources it has to be reported. It's not $600 per source.
I hope that behind closed doors, Blizzard isn't giving us the whole story and the reason the RMAH auction house fees are so outrageous is because they are paying our end of the tax within those crazy fees. Doubt it, but would be nice. Otherwise it would be very disheartening for those players profitting off of Diablo 3 as earnings of this type would be taxed at the self-employment rate, just like earnings on a US Form 1099. Self employment tax rates are higher than normal because you have to cover the portion of the taxes that the employer would have covered as well.
Definately keep an eye out for tax information from Blizzard on D3 sources and other online virtual markets that lead players to real world profits.
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