Taxes were an integral part of the pre-SL 1.2 economy that were intended as a limitation of simulator resource usage, but in practice they didn't work very well. Ways were found to evade them like "mule accounts" that were created to hold more land and objects. Taxes caused the death of many large projects, such as Americana. Rather than ban "muling", Linden Lab opted to ditch the entire economy and allow people to pay land with real dollars (USD) instead of L$. This has worked surprisingly well: whereas in the pre-1.2 days it was virtually impossible for someone to hold an entire sim, nowadays LL has a private island program that is fairly popular.
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