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The term direct tax has more than one meaning: a colloquial meaning and, in the United States, a constitutional law meaning. Certain taxes may be direct taxes in the colloquial sense but indirect taxes in the constitutional sense.

1 Colloquial sense
2 U.S. constitutional law sense
3 Notes
4 See also

[edit] Colloquial sense

In the colloquial sense, a direct tax is one paid directly to the government by the persons (juristic or natural) on whom it is imposed (often accompanied by a tax return filed by the taxpayer). Examples include some income taxes, some corporate taxes, and transfer taxes such as estate (inheritance) tax and gift tax. In this sense, a direct tax is contrasted with an indirect tax or "collected" tax (such as sales tax or value added tax (VAT)); a "collected" tax is one which is collected by intermediaries who turn over the proceeds to the government and file the related tax return.

An 18^th century interpretation was given:

“

The power of direct taxation applies to every individual, as congress under this government is expressly vested with the authority of laying a capitation or poll-tax upon every person to any amount. This is a tax that, however oppressive in its nature, and unequal in its operation, is certain as to its produce and simple in it collection; it cannot be evaded like the objects of imposts or excise, and will be paid, because all that a man hath will he give for his head. This tax is so congenial to the nature of despotism, that it has ever been a favorite under such governments. Some of those who were in the late general convention from this state, have long labored to introduce a poll-tax among us.

The power of direct taxation will further apply to every individual, as congress may tax land, cattle, trades, occupations, &c. to any amount, and every object of internal taxation is of that nature, that however oppressive, the people will have but this alternative, either to pay the tax, or let their property be taken for all resistance will be vain. The standing army and select militia would enforce the collection.^[1]

”

[edit] U.S. constitutional law sense

In the United States, the term "direct tax" has a different meaning for the purposes of constitutional law. Traditionally a direct tax in the constitutional sense means a tax on property "by reason of its ownership" (such as an ordinary real estate property tax imposed on the person owning the property as of January 1st of each year) as well as a capitation (a "head tax").^[2] In the late 1800s, U.S. courts also began to treat an income tax on income from property as a direct tax.^[3] In U.S. constitutional law, an "indirect tax" or "excise" is an "event" tax. In this sense, a transfer tax (such as gift tax and estate tax) is an indirect tax. Income taxes on income from personal services such as wages are also indirect taxes in this sense.^[4] The United States Court of Appeals for the District of Columbia Circuit has stated: "Only three taxes are definitely known to be direct: (1) a capitation [ . . . ], (2) a tax upon real property, and (3) a tax upon personal property."^[5]

In the United States, Article I, Section 9 of the Constitution requires that direct taxes imposed by the national government be apportioned among the states on the basis of population. After the 1895 Pollock ruling (essentially, that taxes on income from property should be treated as direct taxes) this provision made it difficult for Congress to impose a national income tax that applied to all forms of income until the 16th Amendment was ratified in 1913. After the Sixteenth Amendment, no Federal income taxes are required to be apportioned, regardless of whether they are direct taxes (taxes on income from property) or indirect taxes (all other income taxes).^[6]

[edit] Notes

^ The Address and Reasons of Dissent of the Minority of the Convention, of the State of Pennsylvania, to their constituents.
^ For background, see generally Pacific Ins. Co. v. Soule, 74 U.S. 433 (1868); and Brushaber v. Union Pacific Railroad, 240 U.S. 1 (1916) (hereinafter Brushaber).
^ Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, aff'd on reh'g, 158 U.S. 601 (1895) (hereinafter Pollock).
^ See generally Pollock.
^ Opinion on rehearing, July 3, 2007, p. 20, Murphy v. Internal Revenue Service and United States, case no. 05-5139, United States Court of Appeals for the District of Columbia Circuit, 2007-2 U.S. Tax Cas. (CCH) paragr. 50,531 (D.C. Cir. 2007) (dicta).
^ See generally Brushaber, above. In the context of income taxes on wages, salaries and other forms of compensation for personal services, see, e.g., United States v. Connor, 898 F.2d 942, 90-1 U.S. Tax Cas. (CCH) paragr. 50,166 (3d Cir. 1990) (tax evasion conviction under 26 U.S.C. § 7201 affirmed by the United States Court of Appeals for the Third Circuit; taxpayer’s argument -- that because of the Sixteenth Amendment, wages were not taxable -- was rejected by the Court; taxpayer’s argument that an income tax on wages is required to be apportioned by population also rejected); Perkins v. Commissioner, 746 F.2d 1187, 84-2 U.S. Tax Cas. (CCH) paragr. 9898 (6th Cir. 1984) (26 U.S.C. § 61 ruled by the United States Court of Appeals for the Sixth Circuit to be “in full accordance with Congressional authority under the Sixteenth Amendment to the Constitution to impose taxes on income without apportionment among the states”; taxpayer’s argument that wages paid for labor are non-taxable was rejected by the Court, and ruled frivolous).