The comments by DivineShadow on a previous posting got me thinking about the relationship between taxation and virtual worlds. There are some interesting aspects to virtual world taxation that, so far as I know, haven't been addressed much in the nascent literature. So let me spitball for a bit, and Ted (and Julian and Greg and everyone else) can correct my mistakes.
First, it's interesting to note how taxation can be used to mediate server resources. In the goode olde days of lambda and others, resource allocation was performed by the VW equivalent of the central committee of the politburo, aka the Architecture Review Board. As Julian explained in MTL and elsewhere, disk quota was centrally capped, just like all elements of capital and production under Stalinist rule. Requests for deviations from the default allocation had to be justified, and, of course, quota decisions that destroyed, say, beautiful gardens based on the I'Ching were viewed as arbitrary, unfair and destructive. Though various alternatives were mooted--my favorite was Julian's quota lottery or "Quottery"--none of them have the majestic indifference of the market. This, of course, is the central lesson of capitalist economics, and we now are seeing new elements of this emerge in VWs.
I see now that Second Life is using market economics directly to mediate server resources. In 2L if you use resources in building content then those resources get taxed. Of course this leads to the "no taxation without representation" trope, mentioned elsewhere, but it does have the great benefit of working like consumption taxes IRL: those who consume server resources have to pay for it. This is unlike the monthly fee of UO or EQ or any number of games which are much more like the (socially regressive?) flat tax regimes, much favored by the rich. In EQ, no matter how many hours you are online, no matter how many server resources you use, you still pay the same amount. Which, of course, tends to encourage over-use, but this has (some? limited?) social benefit in VWs since it encourages community.
The problem with taxation, at least for developers, is that they can make the case that resource taxing is fair--the user pays depending on the amount she uses. The developers can even tie the tax directly to one's real life money as Entropia tried to do, which also has some benefits. But they're still left with the fact that, well, it's a tax. You can call it a fee, a levy, an impost, or a contribution. People still know that it's a tax. You'd be better off calling it the "Pit of Death." People would prefer that to a tax.
Another way of imposing a tax is much sneakier, and therefore much more fun. You create a market for goods and tax the transactions surreptiously. This is also socially progressive (?), since it taxes at the point of consumption. But it's much better for the developers because it can be spun as a commission (à la eBay). And this is especially good if the developer can make the case that they're simply internalising the market that otherwise would go elsewhere. Then the tax appears to be just a "cost" of running an efficient market, and not a tax. And hell, you can even claim that it's the cost of reducing fraud that would occur in those "unsanctioned" markets. It's the same outcome in terms of server resources and potential revenues as a tax, except you don't get people throwing virtual tea into the virtual bay, and dressing up like Paul Revere.
The sad thing about this problem is that taxes also work to solve (in part) one of the great problems of VWs, that of hyperinflation caused by addition of resources. It's now well established that developers need a resource drain, however spurious, to pull some of the capital out of the world. Otherwise everybody ends up as unhappy as the good burgers of the Weimar Republic who wheeled barrowfuls of marks to the bakers to buy a loaf of bread. The need for resource drains means that we end up with hair dye, or some other equally vapid excuse for retiring capital. But if developers tax the system, then a chunk of resources are pulled out of circulation automatically and, praise be to the gods, deposited in the developer's pocket.
This is helpful, and interesting, and of course completely unacceptable to most players.
I don't pretend to have a lesson here. As usual, this is more in the nature of observations for comment. I do have a number of other thoughts about Julian's desire to be taxed IN REAL LIFE for his transactions in UO. But that will have to wait for another day...