Economic incidence may differ from the statutory incidence of the tax, which is defined as the entity that pays the tax. Economic incidence attempts to measure the true burden of taxation. State income taxes are borne by households. Consumers bear the burden of sales and use taxes. Sales taxes paid by business are ultimately passed on to consumers in the form of higher prices.
Homeowners bear the burden of property taxes.
The first two assumptions are standard in the literature, while the third is similar to assumptions made by the Congressional Budget Office in their work on tax incidence. In order to assess the burden of taxes on California residents an appropriate measure of income is needed, since tax burdens are typically expressed as the ratio of taxes paid to total income. We used a comprehensive measure of annual, money income in our work. Although our measure of yearly income was very comprehensive, income itself may not be a good measure of economic well-being. Income may fluctuate from year to year and over the lifecycle of individuals.