Tax farming is a system where the state, usually a ruler or oligarchy, grants the right to collect taxes to a private person or group of individuals. In theory, this agent collects the taxes and hands them to the state, keeping a percentage for his fee. The tax farmer is eager to make sure the taxes are collected so he does a really good job collecting those taxes. Since the tax farmers are usually closer to the people being taxed, they are going to be better at unearthing the various tax dodges cooked up by the people, thus avoiding the problem of tax avoidance.
This was common in the Bronze Age and flourished from time to time in various places into the late Middle Ages. The Italians still maintain a form of it in their banking system, where the small local banks operate as a taxing authority for certain transactions. The remains of this practice are still with us in the form of business and sales taxes. The retailer is basically a tax collector. The difference is the business collecting sales and employment tax is not getting a commission. They are forced to do it by the state as a condition of doing business.
Like all solutions, it came with trade-offs. The king may have lacked the communications systems and granular knowledge of the local economy to efficiently collect his own taxes, but he gave away some degree of his authority when he resorted to tax farming. He also gave away some portion of his tax revenue to the tax farmer. Since the power to tax is the power to rule, the king was also ceding some of his own power to others, who could one day use those powers against him. In other words, the king was trading power for money, which is always a risky trade-off.
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