I don't know the answer, but I can knock down one.  It's only an untaxed transaction because it's illegal so some providers don't file with the IRS (which is also illegal).

If prostitution were legal, the net income would be taxible, just like the net income for an accountant, garder or lawyer is taxable.  Sales taxes wouldn't apply, because you're buying a service not a good.

My personal theory on why it's illegal today is stuck-up ultra-religious people who feel they must legislate their morality upon everyone.  

My theory on why it was illegal in some places in ancient times is that it allowed a woman to be independant, since she could make a nice income without having to be married.

As a journalist, I have thrown this question around often.  I really think that the reason that it is kept illegal is because our country is still ruled by the Christian religion which dictates that prostitution is wrong.  Even though the Constitution calls for "separation of church and state," it has taken a long time to actually begin to see the concept enforced.  It's only been within the last few decades that references to the Christian God were taken out of schools due to separation of church and state.  We haven't come far enough in our realizations as a society to use the same separation concept on such matters as prostitution.  There are still dry counties because they believe that alcohol for consumption is wrong....
Legalizatiion will eventually happen, I think.  I hope so, anyway.

great stuff...


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