A history of sales tax

All hail sales tax!

The history of taxes on certain goods dates back as far as 4,000 years. Ancient Egypt taxed cooking oil, for instance. The tax was levied on a product people had to buy and were forbidden to reuse (coincidentally, the Pharaoh had a monopoly on production).

Imperial Rome’s Julius Caesar is considered to have implemented a proper sales tax, a 1% flat rate across his entire Empire. Later, Caesar Augustus boosted the rate to 4%.

Medieval Spain collected a general sales tax from the mid-14th through the 18th centuries reaching as much as 15%. Many other taxes of the Middle Ages – such as that on soap in Great Britain – continued into modern times.

Starting about five centuries ago, England seems to have been a big fan of sales-like taxes on an array of common goods, such as playing cards (which lasted until 50 years ago), bricks, candles, wallpaper and hats. England also taxed salt, as did France – one cause of the latter’s bloody revolution in the late 1700s.

In more modern decades, Europe has largely elected to use a value-added tax (VAT).

The American version - History of Sales Tax in the U.S.

The financing government has usually motivated the creation of taxes in America. Sales taxes are no exception. Though one of the first – in Pennsylvania more than 200 years ago – was a mercantile license tax.

Sales tax started in the U.S. when West Virginia initiated the first official statewide sales tax. During the Great Depression, 25 states introduced sales taxes to bolster tax coffers hammered by the bad economy.

Mississippi introduced their sales tax in 1930, followed by many others (including Hawaii, which didn’t even become a state until 1959). These were followed in the 1940s by Florida, Tennessee, Maryland, Connecticut, Rhode Island and the District of Columbia; and in the 1950s by Maine, Pennsylvania, South Carolina, Georgia and Nevada.

All other states (except the five that still don’t have a sales tax) followed in the 1960s, capped by Vermont in 1969.

Sales taxes today have constituted about 18% of states’ tax revenue – a number likely to rise as eCommerce continues to expand. The average tax rate among states that levy a retail sales tax has nearly doubled since 1970.

Not surprisingly, such a revenue source for state and local government (and a drain for citizens and businesses) remains a political lightning rod. In Alaska, which has no statewide sales tax, local communities are banding together to charge sales tax. Lawmakers in many states are quick to cut sales tax on certain items such as food and diapers and trumpet the benefit to constituents. On the flip side, a huge national sales tax was a lynchpin of a recent GOP proposal to replace the income tax and the IRS.

And still in the vanguard of sales tax developments, West Virginia is considering cutting its own state income tax, partially replacing the lost revenue with a higher statewide sales tax.

The history of sales tax is long – and it isn’t going anywhere soon.

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