What Are Some Examples of Direct Tax?
Some examples of direct taxes include income taxes, taxes on assets and real property and personal property taxes. These are taxes that a person must pay directly to the entity collecting the tax. The taxpayer is not able to shift the burden of these taxes onto another individual or group.
The income tax is an example of a direct tax because the person who owes the tax must pay it out of his own pocket. Property taxes must be paid by the property owner to the local municipality and therefore qualify as direct taxes also. Taxes on assets, which include estate taxes that the heirs to an estate must pay if the estate's value is over a certain amount, are also considered direct taxes.
Direct taxes contrast with another class of taxes known as indirect taxes. With an indirect tax, a person pays the tax to another organization or group that then turns the taxes over to the government.
The most prominent example of an indirect tax is the sales tax. When people purchase goods in certain states, they are required to pay a sales tax. They do not pay the tax directly to the state, however. The merchant collects the tax from the purchaser and then turns the money over to the government.