Sales taxes have been collected throughout history. At times known as a consumption tax or a transaction tax, some early Egyptian tomb drawings are believed to depict the collection of taxes as far back as 2000 B.C. (Fox, 2002). Taxes were collected on the consumption of items such as cooking oil by the Egyptians, Romans and Greeks of their time, often over far away lands they had conquered. Spain was known to have a sales tax as far back as the fourteenth century. One of the earliest sales taxes in the United States dates back to 1821. The Pennsylvania mercantile license tax, like many of the early taxes, was neither broad based or high.
William F. Fox, Economic Professor at the University of Tennessee authored a paper that included a brief history of the collection of sales taxes. The paper is titled “History of Economic Impact”. In this paper, Mr. Fox cites a reference to Alfred G. Buchler, author of the book “Public Finance” published by the McGraw-Hill Book Company, Inc., New York and London, 1940. Mr. Fox credits Mr. Buchler when noting that the state sales tax as we know it was developed during the Great Depression. Mr. Buchler credits Kentucky as being the first state that charged a tax solely on retailers. While only lasting six years, from 1930 to 1936, in various forms, the tax laid the ground work for future collections by states.
Currently forty-five states plus the District of Columbia collect some sales tax. The earliest permanent sales tax was enacted by Mississippi in 1930, while Vermont was the last state to enact a tax in 1969. Only five states currently do not have a general sales tax at the state level, though local cities and counties within these states sometimes do charge a general tax on the sale of merchandise.
Sales tax was the largest source of income for states from 1970 until 1998, now surpassed by income taxes. Florida is one of a few states that receive more than 50 percent of their tax revenue from sales tax. It appears the southern and western states are much more reliant on sales taxes than the northern and eastern states. New York for example receives only about twenty percent of its tax revenue from those collected on sales. Local governments generate an overall average of 11.1 percent of their income from sales taxes relying mostly on personal property taxes for revenue (Fox).
State and local sales taxes combined for revenue of over 200 billion dollars in 1999. Tax rates are rising as governments look for ways to increase revenue. State tax rates have risen from an average of 3.25 percent in 1970 to 5 percent today. Interestingly, the sales tax as a percentage of personal income has dropped during this time. Personal spending on taxable goods dropped from 51.4 percent in 1979 to 42.1 percent in 2002, thus lowering the effective rate as measured against personal income (Fox).
