Tax farming

Farming is a technique of financial management, namely the process of commuting (changing), by its assignment by legal contract to a third party, a future uncertain revenue stream into fixed and certain periodic rents, in consideration for which commutation a discount in value received is suffered. It is most commonly used in the field of public finance, where the state wishes to gain some certainty about its future taxation revenue for the purposes of medium-term budgetting of expenditure. The tax collection process requires considerable expenditure on administration and the yield is uncertain both as to amount and timing, as taxpayers delay or default on their assessed obligations, often the result of unforeseen external forces such as bad weather affecting harvests. Governments (the lessors) have thus frequently over history resorted to the services of an entrepreneurial financier (the farmer) to whom they lease or assign the right to collect and retain the whole of the tax revenue due to the state in return for his payment into the treasury of fixed sums (sometimes called "rents", but with a different meaning from the common modern term). Sometimes (Miguel de Cervantes is an example) the tax farmer was a government employee, paid a salary, and all monies collected went to the government.

Tax farmers did not usually deal with individuals; the tax was imposed on a community or other polity, and how the community raised the funds to pay the tax was its own business. Tax farming usually required on-site tax-collecting visits, as postal and banking systems were inadequate or non-existent.

Farming in this sense has nothing to do with agriculture, other than metaphorically.

There are two possible origins for farm.

Some sources derive "farm" with its French version ferme, most notably used in the context of the Fermiers Generaux, from the mediaeval Latin firma, meaning "a fixed agreement, contract", ultimately from the classical Latin adjective firmus, firma, firmum, meaning "firm, strong, stout, steadfast, immoveable, sure, to be relied upon". The modern agricultural sense of the word stems from the same origin, in that a medieval land-"holder" (none "owned" land but the king himself under his allodial title) under feudal land tenure might let it (i.e. lease it out) under a contract as a going concern (not as a sub-infeudated fee), that is to say as a unit producing a revenue stream, together with its workers, livestock and deadstock (i.e. implements), for exploitation by a tenant who was licensed by the contract, or firma, to keep all the revenue he could extract from the holding in exchange for fixed rents. Thus the rights to the revenue stream produced by the land had been farmed by the lessor (therefore strictly perhaps the "farmor") and the tenant became the "holder of the farm", or to coin a word, "farmee". Because this was the form of the farming transaction most known to popular society, the word "farmer" became synonymous with a tenant of an agricultural holding.

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