Luxury tax tokens are collectible coins that represent a the historic period when sales taxes were first instituted in the United States. Only 12 states issued tax tokens and they were primarily sales tax tokens. Alabama issued both a sales tax and a luxury tax token.
Filling in the Blanks
Luxury tax tokens were used like fractional coins. If the sales tax rate was 3 percent and a merchant sold a 10 cent item, he would owe the state three-tenths of a cent in tax. But, since there was no way for him to collect three-tenths of a cent from the customer, the fear was that at the end of the month he would end up selling hundreds of 10 cent items and owing significantly more taxes than he collected. So the state issued coins worth 1 mill, or one-tenth of a cent.
With the issue of tax tokens, the merchant could now accept 11 cents for the 10 cent purchase and give seven tax tokens as change. The next time the person came in he could pay 10 cents plus 3 tokens for the tax.
In actuality there really wasn't much difference between the sales tax and the luxury tax. It was primarily political semantics trying to appease the masses by saying the luxury tax exempted necessities like flour, nails and sugar. But in the end it applied to most items including what most would consider necessities sucf as clothes, molasses and medicine.
Alabama issued tax tokens from March 1, 1937, through March 31, 1948. By 1948 several other states had already ceased production of their tax token. By this time, after WWII, people were tired of the alternative currencies such as ration coupons and just wanted things to be simple. So states began to discontinue the luxury tax tokens.
Large quantities of tax tokens were minted and demand for them as collectibles is low, so they are not worth much. They can often be found in coin dealers' junk boxes for as little as 10 cents each. So although they may be a fun piece of history they are probably not a good long-term investment.