May 3, 1921: When Did Sales Tax Start?

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A Brief History

On May 3, 1921, the state legislature of West Virginia enacted the first Sales Tax in the United States, although problems in creating the mechanism to administer the tax precluded enforcement for several years.  In 1930, Kentucky and Mississippi followed suit, enacting broad based sales tax, although Kentucky repealed the legislation in 1936, possibly due to the effects of the Great Depression.  During the 1930’s many states jumped on the sales tax bandwagon.

Digging Deeper

While broad based sales tax is now common in the US and in Canada, the original application of sales tax pertained to specific items, such as the tax on Whiskey in the US in 1791, an unpopular measure that precipitated the Whiskey Rebellion.  Other American sales taxes were levied during the US Civil War on a variety of products, in fact, so many different products that combined they approached the level of a general sales tax.  The taxing of the sale of specific items goes back about as far as historians can track such things, all the way to Ancient Egypt of 2000 BC!  Other instances of certain products being subject to a sales tax are found in the historical records of Ancient Greece and Ancient Rome.

George Washington reviews the troops near Fort Cumberland, Maryland, before their march to suppress the Whiskey Rebellion in western Pennsylvania.

The idea of a general sales tax on nearly all items seems in one way to be “fair,” insofar as the more you spend the more tax you pay.  Critics of such taxes point out that this method of taxation disproportionately hurts poor and working class people as they are taxed at exactly the same rate as rich people, while a progressive income tax that charges higher rates as income rises is more inherently “fair.”  Same thing with “Value Added Tax” schemes, whereby sales taxes are levied on each stage of production and resale, a somewhat convoluted scheme but extensively used in virtually all industrialized wealthy countries except the United States.

In the United States the Federal Government does not levy a general sales tax, although 45 of the 50 states do.  (The only states with no sales tax are Montana, New Hampshire, Alaska, Oregon and Delaware, although Alaska does allow local governments to charge a sales tax.)  Some states tax all commercial transactions, while most have some exceptions, such as for food, clothing or other necessities.  Some states limit the amount of tax levied on large items such as cars.  In Ohio, food is not taxed, except for food eaten on the premises of where it was sold (such as restaurants and the like).  States commonly slap extra taxes on alcoholic beverages and tobacco products, and some allow local governments to do the same.  Other specific items may also be taxed at a certain rate, such as every gallon of gasoline sold directly to consumers.  (Currently, the Federal gasoline tax is 18.4 cents per gallon of gasoline and 24.4 cents per gallon of Diesel fuel.)  States also add sales tax to gasoline and Diesel fuel, and in 2010 the US Government saw fit to charge a 10% tax on tanning bed use, a tax decried by light skinned people as a racially directed tax!  Counties and cities in the United States may also impose various sales taxes on general items or specific items, driving up the total sales tax bill.  If you live in Tennessee, Arkansas, Alabama or Louisiana you may pay over 9% in combined state and local sales tax!  Consumers that live in such high sales tax areas are known to travel to low tax areas to avoid the higher rates.  Tax happy politicians are fond of levying “vice” taxes on commodities such as alcoholic beverages and tobacco products, and have dreamed up other ways to strip the public of their money such as motel/hotel room taxes and taxes on tickets to sporting events and public entertainment such as concerts.

Fuel tax in OECD countries 2010.  Chart by Peteruetz.

As with the inconsistent application of sales tax, the various states also have a variety of other tax schemes, with many imposing a graduated income tax on wage earners similar to the Federal Income Tax, while others have a Personal Property Tax or no income tax at all.  A citizen’s total tax bill is a complicated and convoluted computation, to be sure.

Many Americans are familiar with the high sales tax rate in Canada, the tax meant to pay for universal health care in our Northern Neighbor.  Then entire country is subject to a 5% Goods and Services Tax to pay for national health insurance, while every province except Alberta adds a Provincial Sales Tax to the mix.  Combined with generally higher prices on Canadian retail goods (partly due to the lower value of the Canadian dollar) American tourists are sometimes shocked by their bill at the cashier.  Other countries have also imposed a GST.

The one- and two-dollar coins, nicknamed the loonie and toonie.

We take a moment to energetically denounce the practice of charging sales tax on used items, items on which sales tax was already charged when they were sold as new.  This is especially apparent when it comes to cars and trucks!  Why should a car that may change hands several times be subject to sales tax every time it is sold?  Just sayin’…

In order to stop the loss of sales tax revenue by citizens traveling out of state to buy items in places with lower sales tax, some states require citizens to report out of state purchases so that they can be charged state and local sales tax.  Also, Internet sales were a tax haven of sorts, but are now often subject to sales tax at the rate of the location where the item is delivered to. (Boo!  We say Boo!)

Cash register receipt showing sales tax of 8.5%.  Photograph by Peter Merholz from Berkeley, CA, United States.

Question for students (and subscribers): Do you think a sales tax is a “fair” tax, or should taxes all be income based?  Do you know what your combined local and state sales tax rate is? Please let us know in the comments section below this article.

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Historical Evidence

For more information, please see…

Dufort, Frank. A Guide to Sales and Use Tax: You’ll discover vital information on important topics ranging from opening a tax account to surviving a state audit. CreateSpace, 2015.

Nelson, Bruce, James Collins and John Healy. Sales and Use Tax Answer Book (2019). CCH Inc., 2018.

Nelson, Tim. SALES TAX FOR AMAZON SELLERS: Expert Sales Tax Advice for Retailers Who Sell on Internet Marketplaces.  Independently published, 2018.

The featured image in this article, a cartoon by Clifford K. Berryman, is available from the United States Library of Congress‘s Prints and Photographs division
under the digital ID cph.3b44026This work is in the public domain in the United States because it was published in the United States between 1924 and 1977 without a copyright notice. See Commons:Hirtle chart for further explanation.


About Author

Major Dan

Major Dan is a retired veteran of the United States Marine Corps. He served during the Cold War and has traveled to many countries around the world. Prior to his military service, he graduated from Cleveland State University, having majored in sociology. Following his military service, he worked as a police officer eventually earning the rank of captain prior to his retirement.