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.

/1/ During the second session of the 67th Congress, several proposals for financing veterans' compensation by a sales tax were introduced, but none received serious consideration.

/2/ Secretary of the Treasury Mellon appeared before the House Ways and Means Committee on January 13, 1932, and stated his reasons for opposing a general sales tax and favoring taxes on selected commodities: "We laid aside all thought of a general sales or turnover tax, not only because generally speaking it bears no relation to ability to pay and is regressive in character, but because of the great administrative difficulties involved and the almost inevitable pyramiding of the tax in the course of successive sales. The objections to a general sales tax are not in this respect applicable to a tax on selective articles of the character heretofore employed in this country and now recommended. * * * We concluded that our immediate needs could best be met by utilizing a known general plan with such changes as might be appropriate in the light of altered conditions rather than embarking on new and untried ventures in taxation."

                              EXHIBIT 2


                              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
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%.
Ind.       All income, 1%, except that received from wholesales, and
           from display advertising which is taxable at 1/4 of 1%.
Miss.      Wholesaling, 1/8%; manufacturing, 1/8-1%; contractors, 1%;
           extracting, 2-2-1/2%; all other businesses and professions
           net specifically exempted, 2%.
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.   
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%.

           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%.

/1/ Type of tax;

(1) RETAIL SALES -- imposed upon sales of tangible personal
property at retail or for consumption. In most States
applies also to admissions and restaurant and public
utility sales.

(2) GENERAL SALES -- applies to wholesaling, extractive
industries and manufacturing in addition to sales at retail.

(3) GROSS RECEIPTS -- includes sales of public services and
personal and professional services in addition to
transactions and receipts under (1) and (2).

(4) GROSS INCOME -- applies, in addition to all transactions and
receipts under (1), (2), and (3), to receipts from non-
business activities such as wages and salaries of employees,
interest, rents and dividends,

/2/ New automobiles.

/3/ Rates in cities or incorporated towns bordering other States
same as that in adjoining State.

/4/ Rate applies to all public utilities except transportation.

/5/ Telephone and telegraph services, gas and electricity sales.
In Illinois the rates on utilities are reimposed under a separate

/6/ The 2% rate is applied to 98% of gross receipts.

/7/ On gas and electricity only.

/8/ Retail sales of pasteurized milk, 1%.

/9/ Automobiles and trucks.

/10/ Industrial sales receive a preferential rate of 1%.

/11/ Automobiles, trucks or tractors.

/12/ Tax applies to rentals as well as sales.

/13/ Maximum tax of $15 on a single article.

/14/ A special excise tax of 2% is applied to an automobile at
the time it is transferred, used or first registered in the State.

/15/ Applies not only to sales of tangible property but also to
all services except professional and personal services, services
rendered by an employee to his employer, and services furnished by
corporations subject to the control of the Public Service Commission
                      EXHIBIT 2 (continued)

                           January 1, 1942

Sales taxes are now imposed in 22 States. /1/ The most
restricted type but the one most frequently used by the States is the
retail sales tax. It is imposed upon sales of tangible personal
property at retail or for consumption. In most States, however, the
retail sales tax also applies to admissions and restaurant and public
utility sales. Retail sales taxes are now imposed by 17 states:

 /*/ 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
tangible personal property both at retail and for resale and in one
instance reaches the acts of extracting natural resources and of
manufacturing. Such a tax is termed a "general sales" tax and is
imposed in two States:

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,

/1/ Not included in this number are the States with so-called "selective" sales taxes limited in application to certain commodities specifically named, e.g., tobacco products, beer and malt. Neither does it include several States which impose low rate taxes on a sales r purchases basis upon merchants, manufacturers and other occupational groups.

/*/ The use tax, a supplementary device to prevent sales tax evasion by out-of-State purchases, applies to the use, storage or consumption of tangible personal property brought into the State. Such taxes are now in effect in the 16 States marked with an asterisk (*). The use tax rate in every State is the same as the rate on retail sales.

Treasury Department, Division of Tax Research, March 14, 1942



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

/1/ Items exempt include: food, water, gas, electricity, coal, petrol, tobacco and drink; children's clothing and boots and, shoes; farm machinery, and certain medicines. The British sales tax is imposed in the form of a "purchase tax" on certain goods purchased from registered dealers (generally wholesalers) by unregistered dealers (generally retailers).