A Quick Look at the Tea Act of 1773

British Tea Act Parliament America Company

The Tea Act of 1773

It has been noted before on Huddleston Tax Weekly that there is a strong tendency in contemporary society to associate taxes with things which are mundane, dull and boring. We’ve also noted that these associations are based on the conditions of our society at the present moment and would make little sense if based on conditions from previous eras. Throughout the bulk of recorded history, taxes have been closely tied to a host of exciting and oftentimes frightening things. With few exceptions, substantive changes in tax policy have accompanied sweeping changes to the existing social order, and the Tea Act of 1773 does not stray from this general rule.

As we will see, the significance of the Tea Act of 1773 stems mostly from the way it was received by the American colonists of the British Empire. The purpose of the act was not simply to generate revenue, but to provide confirmation of the power of the British Parliament to directly tax the American colonies. The act not only failed to achieve its intended goals but also sparked a reaction which ultimately altered the entire course of world history.

Historical Setting

The passing of the Tea Act was surrounded by a number of important political and business phenomena. One of the most pressing concerns of the British Parliament during this (pre-revolutionary) era was to have its power to tax the American colonies fully accepted by American colonists. This concern was among the driving forces behind the so-called Townshend Acts. The Townshend Acts consisted of a series of measures which dealt with a variety of issues relating to the administration of the American colonies. The first of these acts – the Revenue Act of 1767, also referred to simply as the Townshend Act – imposed a tax on tea (and several other items) imported to the colonies. The act forbade the colonists to purchase tea from any supplier other than Great Britain.

The Revenue Act was met with serious opposition from the American colonists who swiftly condemned the measure as a piece of blatant tyranny. Thenceforth the aim to legitimize the taxing power of the British Parliament over its colonies intensified.

Before the Tea Act, the British East India Company had been directed to sell its tea exclusively in London. Tea from the company which did make it to North America did so only through outside merchants who specialized in international sales. By the time the tea reached the market for American consumers, markups and the tax imposed by the Revenue Act made the tea an unattractive buy. As a consequence of these policies, an underground market developed in which foreign (Dutch) tea was smuggled into the colonies and sold at much lower prices. In addition to legitimizing the Parliament’s taxing power, the Tea Act was also passed with the aim of improving the financial condition of the East India Company and shutting down the flow of smuggled foreign tea.

The act contained these terms: the East India Company had the ability to ship its tea directly to North America; the company was no longer bound to sell its tea exclusively in London; duties on tea charged in Britain which were shipped out for international sale would either be refunded when exiting the country or not imposed; and finally, those receiving the company’s tea were required to pay a deposit up front following delivery.

Colonial Reaction

The British lawmakers in the Parliament had reason to believe that the Tea Act would produce favorable results: the tea sold by the East India Company was of higher quality than Dutch tea, and since its price had been lowered, the lawmakers could sensibly infer that the smuggled Dutch tea would lose its competitive advantage. Unfortunately for the British lawmakers, the act would be opposed not only by those colonists who continued to reject Parliament’s ability to lay the tax of the Revenue Act, but also by colonial merchants and underground businessmen who had a financial interest in preventing the ascendancy of the East India Company.

After the act was passed, the East India Company sent a number of ships to America in the hope of unloading its tea on the market; none of these ships was to unload its cargo successfully. Most famously, the ships which arrived at the ports in Boston were raided by irate colonists who tossed the company’s tea into the harbor. This incident came to be known as the “Boston Tea Party,” though it was referred to as the “Destruction of the Tea” in its own time. The colonial stance on the Parliament’s ability to impose taxes was clear, and the stage was set for the massive insurrection which was to eventually give birth to the sovereignty of the States.

Image credit: Prudence Styles

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Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

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