The Great Depression, which commenced nationally in October 1929, had a crippling impact upon the West Virginia economy. Between 1929 and 1933 bank deposits in the state dropped from $183 million to $96 million. As banks and businesses closed their doors, many thousands of West Virginians were without work and virtually destitute. At one time 35 of the state's 55 counties were operating at a deficit.

In order to bring relief to people losing their farms or homes to tax sales, West Virginians added the Tax Limitation Amendment to the state constitution by a vote of 335,482 to 43,931 in November 1932. Under its provisions all real property in the state was placed in one of four categories and the levy rate set for each: on agricultural products and equipment, stocks, bonds, and other tangibles the maximum rate was 50 cents "on each one hundred dollars of value thereon"; on farm and residential property, $1; on all other property outside municipalities, $1.50; on all other property inside municipalities, $2. These maximum rates could be exceeded only through voter-approved excess levies.

A series of legal challenges, the most famous being Finlayson v. Shinnston, before the state Supreme Court established the principle that all county tax levies had to fall under provisions of the amendment. Over time, the Tax Limitation Amendment effectively reduced the role of local governments in West Virginia by limiting local taxation authority. When it became evident that county and city governments could not function with these restrictions, the legislature implemented the county unit system of public schools, and the state assumed the funding of all public roads. In order to garner sufficient operating funds, the legislature established the sales tax to raise funds independently of property levies. Many Depression-era West Virginians long remembered the "Kump Pennies" named for incumbent Governor Kump that were required for the sales tax on retail purchases.