History of Sales Taxes in the United States
Taxes on transactions similar to the modern sales tax have been used by governments throughout history as an effective method of raising money. Historians and archeologists have discovered evidence of ancient tax collectors in Egypt, Mesopotamia, Greece, Rome, and other civilizations from as early as 2000BC.
In ancient times, transaction taxes generally were levied on individual commodities, often on staples such as silver, oil, and livestock. These taxes were collected as caravans of goods transited across popular trade routes, with many civilizations keeping detailed records of such transactions that have survived to this day in the form of cuneiform tablets, like the one to the left.
Sales Taxes in the Middle Ages
During the heyday of the Roman Empire, sales taxes were implemented across much of Europe as the Romans expanded control of commerce in the outlying regions of their empire such as Spain and France.
The tradition of levying sales taxes survived long after the Roman Empire fell, with medieval kingdoms such as Spain collecting a general sales tax from 1342 through the 18th century that ultimately reached as high as 15%.
In modern times, most of Europe has migrated to a Value Added Tax system, or VAT. In the United States, however, general sales taxes came into use in the early 1800s and have continued to expand to this day.
Evolution of Sales Taxes in the United States
While income taxes only appeared in the United States in the early 1900s, states began levying early forms of a sales tax as early as 1821, when Pennsylvania introduced a mercantile license tax. However, the "modern sales tax" did not become widespread until the Depression era, when twenty-four states introduced statewide sales taxes following Kentucky's introduction of a 3% sales tax in 1934.
In the decades since, all but five states have introduced state-level sales taxes, with Vermont being the last state to jump on the sales tax bandwagon in 1969. While there has been some national debate about instituting a national sales tax similar to the VAT collected by most other countries, the United States has never implemented a nationwide VAT or sales tax.
Importance of the Sales Tax in the United States Today
Today, sales taxes are an important revenue source for most state governments, and an important secondary revenue source for the thousands of local municipal governments that collect a local option sales tax. Currently, sales taxes account for about one-third of state government revenues, and are second only to state income taxes as a source of state government financing. Local governments, which are more reliant on property taxes for their tax income, collect about 11.1% of their revenue from local-option sales taxes.
As you can see in our map of local sales taxes across the United States, sales taxes tend to be higher in the south and west of the USA when compared to the midwest and New England. This reflects a higher reliance on sales taxes in states like Tennessee, Louisiana, Florida, and Washington. All of these states rank highly on the list of states with the highest sales taxes, and rely on their state sales taxes for over 50% of their tax revenues.
In conclusion, we can see that while general sales taxes have evolved a long way over the centuries, they continue to be an essential part of state and local governments' revenue strategy in the United States. Sales taxes are here to stay!
To learn more about the various sales tax implementations across the United States, reference our state sales tax handbooks.
Fox, W. (2002, March 13). History and Economic Impact of the Sales Tax.
Retrieved January 15, 2016, from http://cber.bus.utk.edu/staff/mnmecon338/foxipt.pdf