http://www.uscivilflags.org/articles-history.html
The First U.S. Civil Flag 1799
In the early days of our nation, horizontal stripes became the accepted practice for use over military posts, and vertical stripes were used over civilian establishments. The use of the Civilian Flag also spread to Merchants and Common citizens to symbolize their Constitutional rights.
The Civil Flag had red and white vertical stripes with blue stars on a white background. By the Law of the Flag, the vertical striped design denoted Roman Civil jurisdiction within Federal territories rather than Military jurisdiction under Admiralty law. The practice of using the Customs Flag as a Civil Flag became encoded law in 1874 when Treasury Secretary William. A. Richardson required all customhouses to display the Civil Flag.
Where did Wolcott get the idea of using vertical stripes from?
Why did Wolcott choose to turn the horizontal stripes of Old Glory ninety degrees? We need to return to the beginnings of the American Revolution to satisfy this query.
In Boston, the Sons of Liberty were the original revolutionary group who sparked the initial rebellion against the British in 1765. The Stamp Act was imposed by the British Parliament to tax all forms of legal documents within their American colonies. The Stamp Act created great unrest in America, especially in Boston, where an effigy of the local stamp agent, Andrew Oliver, was hanged and burned. Eventually, Oliver resigned, his home looted, and the stamps destroyed. The Elm tree Oliver was hung on became known as the "Liberty Tree".
The Stamp Act rebellion initiated the Stamp Act Congress, which gathered representatives from nine of the thirteen colonies. A petition of rights and grievances was drawn up declaring that the colonists "were entitled to all the inherent rights and liberties of natural born subjects." The colonies also declared that "no taxes ever have been, or can be constitutionally imposed upon them, but by their respective legislatures," and that it “was unreasonable and inconsistent; for the people of Great Britain to grant to His Majesty the property of the colonists."
The petition asserted that extending the courts of ADMIRALTY, the law of the seas, in order to prosecute the Act undermined "the rights and liberties" of the colonists. So, the original “common law flag” was first raised over the Liberty Tree in Boston. The "rebellious stripes", as the flag came to be called, was the original flag used by the Sons of Liberty, and it had 9 red and white vertical stripes!