The metaverse developers anticipated it to be an adequately developed virtual environment with virtual people, places, things, and more that would completely alter our global economy. Since multiple platforms provide interactive games, business prospects, and social interactions, development is advancing quickly. As these sorts of activities are only predicted to increase, it is now up to all governments, whether state, federal, or foreign, to consider what and how they need to be taxed, whether through transaction taxes, income taxes, or any other types of taxes.
Taxes in the Metaverse
What that implies to exist in the Metaverse is the initial thing that needs to be clarified whenever it concerns income taxes. Take a look at the digital version of an analog real estate agent, for instance. She is employed to choose potential digital land purchases for her client, and her client buys a package and gives the broker cryptocurrency as compensation. The broker’s fee is taxing income, similar to her analog equivalent. The broker would, in this instance, record her commission as regular metaverse income on her federal and state tax returns based on the cryptocurrency’s valuation on the day she is paid.
NFT Payments Qualify as Barter Transactions
Even though NFTs also fall within the property definition, the IRS must establish recommendations stating that cryptocurrencies are an asset. Could the fact that our broker received an NFT in return for her services be considered barter? Indeed, however, only if the dealer and her customer agreed that perhaps the FMV of the NFT and the reasonable market value of the broker’s activities are comparable.
If the parties concur that the NFT’s FMV is equivalent to the FMV lease duration, the trade counts as barter, and in both situations, the dealer and the landlord would disclose the transaction amount as revenue. The same would be valid for the landlord and her tenant. Naturally, figuring out the FMV of the NFT is a challenge.
If the FMV of the NFT in the broker’s scenario is established by contrasting the costs of identical NFTs, it is conceivable that no barter could have taken place. It is nearly given that our broker’s compensation is only a tiny portion of what the purchaser spent for the virtual currency because individuals, companies, and governments routinely pay thousands of dollars or more to purchase the digital property.
The FMV of the NFT offered is lower than the FMV of the broker’s offerings, but the inverse may also be accurate. A digital dealer would have been better off demanding payment in traditional fiat or cryptocurrency.
Obtaining Revenue from Deals Involving Digital Land
A tricky question is about the tenant’s origin and seller’s revenue resulting from the exchanges when the seller and buyer scenario is extended to include both buyers and sellers of virtual land. The real estate jurisdictions are the source of this revenue in this physical world, which does not make sense in the internet world. Thus, where should the tenant and seller’s revenue from their ownership of digital land start coming?
What Happens if the Platform’s Operators are Located Outside America?
Suppose the platform owner assumes the role of a landlord and is authorized to conduct business in a country. In that case, the company will be given a legal U.S. location, and the rental income will be made to the county where its address is. The buying price will be determined aptly whenever the system acts as the digital real estate seller. Rent payments and purchasing payments must be made to the platform’s home country if neither the seller nor the owner is a US-based company.
Conclusion
Since the IRS has not given much taxpayer advice in the U.S., Metaverse tax practitioners are left to fill in the gaps primarily using their own experiences and knowledge. Despite these drawbacks, the Metaverse still has the potential to be an engaging virtual environment, even if it never fully materializes.
