Sales tax is so familiar today that it is easy to forget it is relatively new. The history of sales tax in the US is a story of state budgets under pressure during the Great Depression, a slow spread across the country over four decades, and a long legal fight over whether states can tax sales made from out of state. Knowing that history explains why the US system looks the way it does today.
Key takeaways
- General state sales taxes spread during the Great Depression, beginning with Mississippi.
- By the end of the 1930s, 22 states had a sales tax. Vermont became the 45th and last in 1969.
- The Supreme Court limited taxation of remote sellers in 1967 and 1992, then overruled those decisions in 2018.
- Today 45 states and DC have a statewide sales tax, and thousands of local jurisdictions add their own rates.
Before Sales Tax: Property and Excise Taxes
In the 19th and early 20th centuries, states relied mainly on property taxes, plus excise taxes on specific goods such as alcohol and tobacco. General taxes on everyday retail purchases were rare. That changed when the Great Depression cut property values and incomes, leaving state treasuries short of money just as demand for public relief grew.
The 1930s: Mississippi and the Depression-Era Wave
Mississippi is generally credited with starting the modern state sales tax. The Tax Foundation dates the trend to Mississippi in 1930. The Mississippi Department of Archives and History records that Governor Martin Sennett Conner pushed the legislature to pass a sales tax to close a deficit of about $13 million, and a 2% state sales tax took effect on May 1, 1932.
Other states followed quickly. According to the Tax Foundation, 22 states had adopted a sales tax by the end of the 1930s. Some states even issued sales tax tokens so that merchants could collect tax on purchases worth only a few cents.
1940s to 1969: Spreading Across the Country
| Period | Milestone |
|---|---|
| 1930s | Depression-era adoption begins with Mississippi. 22 states have a sales tax by 1940. |
| 1940s | Six more states and the District of Columbia adopt sales taxes. |
| 1950s | Five more states adopt sales taxes. |
| 1960s | The final wave. Vermont becomes the 45th and last state in 1969. |
Five states never adopted a statewide general sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Alaska still allows local sales taxes. Learn more in our guide to states with no sales tax, or visit the pages for Mississippi and Vermont to see their current rates.
The Rise of Local Sales Taxes and Use Tax
As state sales taxes matured, many states authorized counties, cities and special districts to add their own rates, creating the layered system described in how local and special district taxes work. States also adopted use taxes to reach purchases made out of state and brought home, as explained in sales tax vs use tax.
The Remote Seller Question: Bellas Hess, Quill and Wayfair
Mail-order catalogs, and later online shopping, raised a hard question: can a state require an out-of-state seller to collect its tax?
- 1967, National Bellas Hess v. Department of Revenue of Illinois: the Supreme Court held that a state could not require a seller without physical presence in the state to collect its sales and use tax.
- 1992, Quill Corp. v. North Dakota: the Court declined to overrule Bellas Hess, keeping the physical presence rule largely in place.
- 2002, Streamlined Sales and Use Tax Agreement: states adopted the agreement on November 12, 2002, to simplify and standardize sales tax administration.
- June 21, 2018, South Dakota v. Wayfair: the Court overruled Quill and Bellas Hess, allowing states to require remote sellers to collect tax based on economic activity.
After Wayfair, states adopted economic nexus thresholds and marketplace facilitator laws. See sales tax nexus and marketplace facilitator sales tax.
Sales Tax Today
Today sales tax is one of the most important revenue sources for state and local governments. Rates, exemptions and rules vary widely: some states exempt groceries or clothing, some tax digital products, and local rates can change every quarter. That complexity is why tools like the Sales Tax Calculator and our state rate directory exist.
Then and now: tax on a $100 purchase
Mississippi in 1932: $100 × 2% = $2.00
Mississippi state rate today: $100 × 7% = $7.00, before any local tax
Conclusion
The history of sales tax in the US runs from emergency Depression-era revenue to a nationwide system that now reaches online sellers everywhere. Each era added a layer: state taxes in the 1930s, local and district taxes later, and remote seller rules after 2018. To see how that history shows up in today’s rates, look up any ZIP code on the Tax Rate Center homepage, compare states on our state pages, or run numbers with the Reverse Sales Tax Calculator and Add/Remove Sales Tax Calculator.
Frequently Asked Questions
Which state had the first sales tax?
Mississippi is generally credited with the first modern state sales tax. The Tax Foundation dates the trend to 1930, and Mississippi’s 2% sales tax took effect on May 1, 1932.
Why did states adopt sales taxes?
The Great Depression reduced property and income tax collections while demand for public services grew. Sales taxes gave states a broad, steady source of revenue.
Which was the last state to adopt a sales tax?
Vermont, which enacted its sales tax in 1969 and became the 45th state with a statewide sales tax.
What did South Dakota v. Wayfair change?
Decided on June 21, 2018, Wayfair overruled the physical presence rule from Quill and Bellas Hess, allowing states to require out-of-state sellers to collect sales tax based on their economic activity in the state.
Is there a federal sales tax in the US?
No. The United States has no national sales tax. Sales taxes are imposed by states and local governments, although the federal government levies excise taxes on certain goods.