How Modern Tax Certificate Auctions Began
In the year 300 B.C., the Roman Republic began an incredible expansion of their empire through trade and conquest. Their rapidly increasing territory put demands on the Roman government to raise funds for their army and growing bureaucracy. Taxes were levied on land, livestock and houses at a nominal 1-2% rate much as they are still applied in the modern world. They were originally collected by tax administrators near the end of harvest time each year.
Most of this taxable property was on farmland and the treasury was reliant on its public officials to collect their taxes as crops were put to market. Unfortunately, a series of crop failures coupled with the difficulting of collecting taxes from far-flung new territories led to very sporadic tax revenues. In order to stabilize Rome’s revenues, private collectors called Publicani were given the opportunity to purchase, at auction, the right to collect taxes for a particular region. These Publicani took the responsibility of collecting taxes off of the government and, in exchange, they would keep the stream of payments and could even take the property from those who failed to pay their share.
With few controls over these “private” tax collectors, the system was widely abused and eventually led to serious reforms by Emperor Augustus. These tax collectors would sometimes charge much higher rates in the forms of loans to farmers in order to pay their taxes. With a sudden drought or other calamity affecting their crops, these farmers could lose their entire farm for failing to pay taxes. Despite its abuses, this system of “tax farming” and private tax collection spread throughout the known world including to Pharaonic Egypt, China, and the Ottoman Empires.
Feudal England picked up the practice of selling tax collection rights with varied success and the practice spread to colonial America in limited form. Tax deed sales were common in the United States in the 1800s, but it was not until the Great Depression that taxing jurisdictions found they needed a source of stable, reliable revenue that would be a counter to the low land values they were dealing with after the Depression. Counties and States adopted the approach of holding annual tax lien auctions allowing private individuals and companies to purchase delinquent tax receipts. States used a wide variety of auction/sale types whose formats largely reflected the process of selling tax deeds in each state. With the recent recession of 2009/2010, states and counties are again re-evaluating their approaches to collecting tax revenues.