An appeal to extremes?

This sounds more like a polemical position than a logically sound argument. I agree with Bo and others that it is a weak analogy. 

I was talking about the act of pimping, not the workers themselves. Perhaps my original statement was poorly worded and didn't convey that properly. Let me try again.

"If collecting taxes on sex work means that sex workers are being pimped by the government, then all workers are being pimped by the government."

My quibble is that pimping is a term unique to sex work and that pimping has a criminal element to it, so it makes no sense to call all taxation "pimping."

My answer is the same. But this hypothetical is silly (upon reflection) because "pimping" requires "the action or practice of controlling prostitutes and arranging clients for them" not just taking a share of earnings.

What we are saying is IF we define "pimping" as "taking a share of earnings" THEN since the government is "taking a share of earnings" of all (legal) workers, it follows that all (legal) workers are being "pimped" by the government.

Similarly, we can say, "If kissing people on the cheek means that you are having sex with them, then kissing your mom on the cheek means you are having sex with your mom." This logically follows, but is silly, because that not what "having sex" means.

So would you say that "When the state taxes prostitution, it acts as a pimp" is a silly argument?

It is more of a claim. I would say it is a silly claim, but more formally that statement alone would actually be a weak analogy because a government taxing services (even sex services) is more unlike a pimp than it is like a pimp. Here is a strong analogy:

The state taxing prostitution is like pimping IN THAT both pimps and the state make money off sex workers.

But to this I would say who cares because any similarity is overshadowed by the differences. We can also say:

My dad is like Hitler IN THAT they are both men.

The State taxes income regardless of whether that income is legal or not.

So it is deceptive to claim that the State taxes prostitution (or drug dealing for that matter) If the prostitute or drug dealer pays taxes it does not make their means of income legal, nor does it implicate the government in their illicit dealings. 

Al Capone was a bootlegger who was not charged or found guilty of bootlegging, but tax evasion. 

So the whole argument is a kind of Red Herring/ Strawman because it misrepresents and distracts through misrepresentation and exaggeration.