HISTORY OF FEDERAL GENERAL SALES TAX PROPOSALS
The Federal Government has never imposed a general sales tax but at various periods in our history Congress has given consideration to such a tax.
CIVIL WAR. The first movement for a general sales tax in the United States occurred during the Civil War. While the proposal of a general sales tax was rejected by Congress, a comprehensive system of production and consumption taxes was established.
1918-1921. After the World War a demand arose for the repeal of the excess profits tax, reduction of the surtax rates on individual incomes, and elimination of the special war excises. The sales tax was brought forth is a possible alternative source of revenue.
Senator Borah introduced a bill in September, 1918, providing for a transactions tax. This proposal was presented at the hearings before the Ways and Means Committee on the Revenue Act of 1918, but no action was taken.
During the first session of the 67th Congress, Senator Smoot introduced a series of sales tax amendments (five in number) to the Revenue Act of 1921. The first proposal was a 1% turnover tax which applied to all sales (or leases) of goods in excess of an annual turnover of $6,000. When strong opposition was expressed to the proposal on the floor of the Senate, Senator Smoot presented a revised bill providing for a 3% manufacturers' and producers' tax. Later in the session the second Smoot amendment was reintroduced in a modified form providing for a 1% manufacturers' and producers' tax. This proposal was voted on and defeated November 3, 1921. The following day Senator Smoot proposed a 0.5% turnover tax which also was defeated. A third and final proposal for a 3% production tax was defeated three days later. /1/
After the failure of the Smoot amendments, the sales tax issue remained closed for about ten years.
1932. In 1932 the sales tax issue was revived. The Treasury Department's tax recommendations submitted to the House Ways and Means Committee in January, 1932, expressed opposition to a general sales tax and favored excise taxes on selected commodities. /2/ A bill providing for a 2.25% sales tax introduced by Representative Crisp, Acting Chairman of the Committee on Ways and Means, was considered in connection with hearings on the Revenue Bill of 1932 and was reported as part of the Revenue Bill. The Treasury Department withdrew its objection to the sales tax and supported the Committee's bill. When the Revenue Bill was considered in the House on March 24, 1932, an amendment offered by Representative Doughton to strike the sales tax was adopted. Efforts to restore the tax to the Revenue Bill on April 1, 1932 were defeated.
1933-1941. A 1.75% manufacturers' sales tax was offered by Senators Reed, Walsh and Byrd as an amendment to the N.I.R.A. Act, but was defeated on June 9, 1933.
Beginning with the McGroarty bill (the first so-called "Townsend pension bill") introduced in January, 1935, a series of bills (more than a score in number) providing for sales taxes of broad application, transactions taxes or gross income taxes, have been proposed as means of financing old age pensions. Congressional committees have given careful consideration to certain of these bills in connection with House and Senate hearings on the Economic Security Bill in 1935 and hearings of the House Select Committee Investigating Old Age Pension Organization in 1936. One of the bills (H.R. 6466) introduced by Senator Hendricks in May, 1939, was reported by the Ways and Means Committee without recommendation and was defeated when it came to vote on June 1, 1939.
EXHIBIT 2 STATE SALES TAXES: TYPES AND RATES -- JANUARY 1, 1942 Tangible Amuse- Res- Public Type of Use personal Auto- ment tau- util- State Tax /1/ Tax property mobiles places rants ities _____ ____________ ___________________________________________ Ala. Retail sales x 2 1/2 /2/ 2 Ariz. General sales 2 2 1 Ark. /3/ Retail sales 2 2 /2/ 2 2 2 /4/ Calif. Retail sales x 3 3 Colo. Retail sales x 2 2 2 2 /5/ Ill. Retail sales 2 /6/ 2 /6/ 3 /5/ Ind. Gross income 1/2 1 1 1 Ia. Retail sales x 2 2 2 2 Kans. Retail sales x 2 2 2 2 2 Mich. Retail sales x 3 3 3 3 /7/ Miss. Gross receipts x 2 /8/ 1 /9/ 2 2 /10/ Mo. Retail sales 2 2 2 2 2 New Mex. Gross receipts x 2 /12/ 1 /11/ 2 2 2 N.C. /13/ General sales x 3 3 3 N. Dak. Retail sales x 2 2 2 2 Ohio Retail sales x 3 3 Okla. Retail sales x 2 /14/ 2 2 2 S. Dak. Retail sales x 2 2 2 2 2 Utah Retail sales x 2 2 2 2 2 Wash. Retail sales x 3 /12/ 3 Gross receipts 1/4 W. Va. Retail sales /15/ 2 2 Gross income 1/2 65/100 65/100 1.3-5.2 Wyo. Retail sales x 2 2 2 2 2 [table continued] Rates on receipts from other specific sources _____________________________________________ Ala. Ariz. Manufacturing, preparation for sale of agricultural and horticultural products, slaughtering animals for food, sales of poultry products and stock feed, 1/4%; extract- ing, processing, printing and publishing, contractors, advertising, transportation, 1%; hotels and garages, credit and collection agencies, 2%. Ark. /3/ Printing, 2%. Calif. Colo. Ill. Ind. All income, 1%, except that received from wholesales, and from display advertising which is taxable at 1/4 of 1%. Ia. Kans. Mich. Miss. Wholesaling, 1/8%; manufacturing, 1/8-1%; contractors, 1%; extracting, 2-2-1/2%; all other businesses and professions net specifically exempted, 2%. Mo. New Mex. Wholesaling, 1/8%; extracting, 1/2 or 2%; processing and manufacturing, 1/4 or 1/2%; contractors, 2%; transporta- tion, real estate commissions, factors, agents, brokers, advertising, personal and professional services, 2%. N.C. /13/ Wholesaling, 1/20%. N. Dak. Ohio Okla. Printing and publishing, transportation (of passengers only), advertising, 2%. S. Dak. Utah Transportation (except intrastate movements of freight and express or street railway fares), 2%. Wash. Wholesalers (except wholesalers of wheat, oats and barley, which are 1/100%), extractors, manufacturers, printers and publishers, 1/4%; all other businesses and professions not specifically exempted, 1/2%. W. Va. Wholesaler, 195/1000%; extracting, 1.3-7.8%; manufacturing, 39/100%; contractors, 2%; industrial loan companies 1%; all other businesses not specifically exempted, 1%. Wyo.
EXHIBIT 2 (continued) STATE SALES TAXES: TYPES AND RATES January 1, 1942
Sales taxes are now imposed in 22
States. /1/ The most
/*/ Alabama Illinois Missouri /*/ South Dakota Arkansas /*/ Iowa /*/ North Dakota /*/ Utah /*/ California /*/ Kansas /*/ Ohio /*/ Washington /*/ Colorado /*/ Michigan /*/ Oklahoma /*/ West Virginia /*/ Wyoming
A broader form of the tax is that which
affects sales of
Arizona /*/North Carolina
In the latter only retail and wholesale sales are taxed; the former has the broader application.
A still broader type of tax has the essential elements of the general sales tax but is extended to include sales of public services and personal and professional services. These so-called "gross receipts" taxes are imposed in three States:
/*/ Mississippi /*/ New Mexico Washington
The broadest type of sales tax is the "gross income" tax which applies, in addition to all transactions and receipts in the previously mentioned taxes, to receipts from non-business activities such as wages and salaries of employees, interest, rents and dividends. This type of levy is found in two States:
Indiana West Virginia
In both Washington and West Virginia retail sales are taxed twice -- in Washington under the gross receipts tax as well as the retail sales tax, and in West Virginia under the gross income tax and the retail sales tax.
The rates which apply to retail sales are distributed as follows: 1/2% in one State, 2% in 16 States, and 3% in five States. The rates on receipts from sources other than retail sales range from 1/100% to 2-1/2% under general sales and gross receipts taxes and from 195/1000% to 7.8% under gross income taxes,
Treasury Department, Division of Tax Research, March 14, 1942
TYPE AND RATE OF SALES TAX AT PRESENT IN EFFECT IN AUSTRALIA, CANADA, AND GREAT BRITAIN
Country Type Rate _______ ____ ____ Australia Wholesale Goods classified according to the degree of necessity at rates of 20%, 10%, and 5%
Canada Manufacturers' 8% (12% on furs)
Great Wholesale 33-1/3% on wholesale value of certain Britain luxuries and articles not normally requiring immediate replacement.
16-2/3% on wholesale value of non- luxuries which are not subsistence goods. /1/
Treasury Department, Division of Tax Research, March 14, 1942