A direct tax is a tax paid directly to the government by a person or organization.[1] A direct tax may not be passed on to another person or entity but must be paid by the entity responsible for the tax.[2] A direct tax is different from an indirect tax, which is paid by someone other than the person or entity who would normally be responsible for it.[3] For example, a tax owed on a piece of property is a direct tax.[3] A tax on the sale of that property would be considered an indirect tax.[3]
Income tax
An income tax is a tax that governments levy on individuals and businesses on their income.[4] In the US and other countries, businesses and individuals need to file an Income Tax Return every year.[4] This is to report all forms of income and to see if they owe any tax or can get a tax refund.[4] Income tax is an important source of funds to most levels of government.[4]
The 16th Amendment
In the United States Constitution, the difference between indirect and direct taxes was important enough to require a Constitutional amendment in order for the federal government to levy an income tax.[3] This was the Sixteenth Amendment which was ratified in 1913.[5] Before the Sixteenth Amendment, any direct tax levied by the federal government had to be apportioned among the states by population.[6] As apportionment by population proved to be virtually impossible, levying direct taxes was prevented by this article of the Constitution until it was changed in 1913.[6] So the federal government relied on indirect taxes such as tariffs and Duties on imported goods and materials.
Corporate tax
Another form of direct tax is the corporation tax. This is a tax on profits earned by corporations and other companies.[7] In the United States the federal corporate tax is a direct tax, but is different from income tax.[8] It taxes net income (profits) not gross income (on which income taxes are based).[8] Corporate tax allows deductions for most expenses of doing business.[8] Also, it only applies to corporations. It does not apply to partnerships or sole proprietorships.[8]
Property tax
Property tax, also called millage tax, is a tax on property that the owner must pay.[9] They are usually collected by local governments and are based on a standardized value of a property.[9] Property tax money is usually used for schools, community safety and local infrastructure.[9] Millage rates refer to the mill: one one-thousandth of a dollar. The millage rate is the amount of taxes levied per $1,000 of property value.[9] For example, if the millage rate is 3 mills (or 3 tenths of a penny), a property valued at $300,000 would be a tax of $900.[9]
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