you'd have a point if you were talking about vat. only problem is, the us doesn't have a national vat. it's true that vat has been collected from some second life residents, and this is something of a bookkeeping nightmare as it is impossible to determine who needs to be charged vat. (so they end up overtaxing it, even on transactions to residents of other countries that should have been vat-free, and this sets up an unfair advantage to those players who live in countries that don't collect vat - like the us, heh.) usa already taxes the income made from sales of game currency. china apparantly wasn't. so this comparison doesn't fly. are you suggesting that you should tax the game currency before it's been sold? how would you know if its income or not before conversion into cash? most players in second life are *not* making an income - most players buy the currency and then buy virtual items with it, most players who sell virtual items in second life don't make a profit that can cover their ingame expenses either - so it's not cashed out most of the time. there's a small number of players who do nothing but trade on the currency exchanges, but these people are certainly not representative of most of the player base. linden lab is not forthcoming with how much of these currency sales are from them to players (printing it out of thin air, which is the risk of virtual currency as you should know), or are player to player, at least over the exchange they run. as whimsy said, farmville? you can't cash out of games like that. in fact, zynga filed for a patent on this. it's not a big jump from taxing the points in games to taxing other sorts of "virtual currency" - such as frequent flyer points before you used or sold them. (which would be a lot easier to assess than the nebulous value of game points - as frequent flyer miles are tied to real prices of airline tickets) currently, they are taxable only if you convert them into cash, and not before. same as game currency. be careful what you wish for. scrip is scrip, it doesn't matter if you got it in a game or got it from an airline.

1. second life is a virtual world, not an online game. 2. any money earned from virtual buisness in second life over a certain amount is to be reported to the irs, just like any other business on the internet, once it's cashed out of second life. 3. zynga games like farmville is money in, and it stays in. you can't cash out of those. trying to tax games like that is like trying to impose a tax on a bonus you get while playing pac man. 4. sites like ebay which offer lindens (the virtual currency of second life) are posing as banks, and inworld banking is not allowed by second life's tos currently. they should be reported to linden labs, and not trusted. there are legitimate sites that do allow a second life residents to exchange their real life money for inworld currency, and also cash out, just as you can do on the second life website. again, someone who is earning virtual income in second life, should be treating their store as they would outworld and be reporting taxes, just as they would if they had a website selling goods, and services. you should try being more transparent by doing your research, but you could also try by naming your site to something that doesn't imply you are affiliated with government, or an extension thereof.