When a Penny Was Too Much: The Strange History of America's Sales Tax Tokens

Imagine going to the store for a cheap snack, maybe something that costs a dollar. Now imagine being charged an extra twenty cents in tax for it—not because the tax rate is 20%, but because the smallest coin you have is a twenty-cent piece. Sounds absurd, right? But this was the reality for millions of Americans during the Great Depression, leading to the creation of a fascinating and now-forgotten form of currency: the sales tax token.

The Tyranny of the Penny

In the 1930s, the United States was in the depths of the Great Depression. Money was scarce, and every cent counted. To raise desperately needed revenue for relief efforts, many state governments introduced a general sales tax for the first time. These taxes were typically low, around 2-3%, but they created a serious mathematical problem for small purchases.

Consider a 5¢ Coca-Cola or a 10¢ loaf of bread. A 2% tax on a 10-cent purchase is just two-tenths of a cent (0.2¢). The smallest coin in circulation, however, was the one-cent penny. Shoppers faced a dilemma: either pay no tax or round up and pay a full penny. Paying a penny on a 10-cent item is a 10% tax rate. On a 5-cent purchase, it's a whopping 20% tax. In an era when a penny had the buying power of about a quarter today, this overpayment was not a trivial matter.

The choice for state governments and merchants was stark: either consistently overcharge the poorest citizens on their most basic purchases, or devise an entirely new system for handling fractions of a cent. For many, fairness won out.

A Fractional Solution

Starting in 1935, twelve states—including Illinois, Missouri, and Washington—began issuing sales tax tokens. These were tiny, coin-like objects valued in 'mills,' with one mill being equal to one-tenth of a cent (1/1000th of a dollar). They were made from a variety of cheap materials, including cardboard, fiber, aluminum, brass, and early plastics like Bakelite.

The system was simple. When a customer made a purchase, the merchant would calculate the exact tax. For a 25¢ purchase with a 2% tax, the total would be 25.5¢. The customer could pay 26¢ and receive a 5-mill token back as change. They could then save these tokens and use them to pay the exact tax on future purchases. This ensured the state received its revenue and the customer was never overcharged.

The Inevitable Decline

While a clever solution, carrying around handfuls of tiny, nearly worthless tokens was a hassle for consumers and a logistical challenge for businesses. They were a necessary nuisance in a time of extreme economic hardship. However, their fate was ultimately sealed by the one thing that makes tiny denominations obsolete: inflation.

As the U.S. economy recovered and prices began to rise after World War II, the value of a single mill became infinitesimally small. The cost of manufacturing and handling the tokens soon outweighed their fractional-cent value. States began phasing them out in favor of a bracket system for tax collection, where tax is rounded to the nearest penny based on price ranges—a system still widely used today. By the early 1960s, the sales tax token had vanished from circulation, becoming a relic of a bygone era.

Today, these tokens are collectors' items, tangible reminders of a time when a fraction of a penny was valuable enough to merit its own currency and a testament to the ingenuity born from economic necessity.

Sources

• Wikipedia: Sales tax token
• American Numismatic Society: The Sales Tax Tokens
• Federal Reserve History: The Great Depression