Tax farming is a practice that can be traced as far back as Mesopotamia and has found expression in Ancient Roman, Greek and Egyptian civilization. From there it spread throughout most of Asia and Europe, and there is scarcely a polity in history that has not practiced it. The concept is simple and its efficient discharge theoretically removes a great strain from the state bureaucracy.
Tax farming works roughly as follows. The state allows a particular entity (be it in a single person or, more commonly, a corporate body) a monopoly to collect taxes in a particular geographic area. The price for this was a fixed, pre-decided, sum that had to be paid the government at regular intervals. Whatever else the tax farmers could gather was their own to keep, this being the profit on the enterprise. What we have here is a particularly odious form of corporation - the mixing of the public and the private interest - but one that seemed essential and beneficial to the fledgling nation state.
Corruption was rife in the financial administration of Europe in the Medieval and Early Modern Periods. There was no strong central government which could rely on its ubiquitous power to ensure its business was discharged as efficiently as possible. As late as the sixteenth century the Lords in North England ran Northumberland as a private fiefdom and later even the famed Prussian bureaucracy (with its proverbial "Prussian efficiency") was rife with corruption. And when one lacks the means to compel others to do as they are told, one looks to find a mutually rewarding situation. Certainly, the tax farmers would make a profit - less money for the state! But the state was guaranteed a certain amount, all the more appealing because it could be expressly accounted for as a future prediction of revenue. And if the tax farmer fell short, he himself would become liable for the difference. In France, where tax farming has been described as "a means for rich men to get richer" (Schama), there was considerable security.
Tax farming led to a creation of a class who were hated by the lower orders (this being especially true in countries where the aristocracy and clergy were exempt from taxation). In France, where the Ferme Generale (Farmers-General) was the biggest employer in the country after the King's Army and Navy, most of these men were guards and warriors. If anything is more famous than the venality of the ancien regime it is its tax farming, and the Ferme Generale had even more corporate duties than the mere farming of taxes. Holding the monopoly on the distribution of salt they were in charge of the entire supply chain, going to great lengths to secure their investment and tracking the product from its entry into the country to when it was dispatched to each consumer. Bizarrely, each French household was required by law to purchase a means-assessed amount of salt every year!
Meanwhile, in England, the taxation system had developed along quite different lines. The English government took responsibility itself for its own customs and excise. The central English state was by the time of the French Revolution powerful enough to do so at a cost of only 10% to corruption. The French system, it was estimated, was run at a cost of 13%. The "backwardness" of the French fiscal system has often been indicated as one of the reasons for its downfall, although it is understandable why the ministers of Louis XVI scorned reform in this field with its pay-off of a mere 3%. Tax farming was not the most exalted and most brilliant of taxation systems, but in the time of weak central states it served its purpose. The tax farmers were a transitory class in history that eventually gave way to the power of the central nation state. Their credibility and use in the eyes of the people was perhaps damaged by their lack of power - the central state, reasoned the people, taxed to the benefit of all (this is the dominant mode of thought on taxation today). But society would not long tolerate a class whose only business was taxation, ostensibly for their own gain.