# Direct Tax: Definition, History, and Examples

> **Definition**
>
> A direct tax is paid by the taxpayer straight to the authority that levies that tax.

## What Is a Direct Tax?

With a direct tax, you pay the [tax](https://www.investopedia.com/terms/t/taxation.asp) to the entity that imposed it. Examples include [income tax](https://www.investopedia.com/terms/i/incometax.asp), real property tax, personal property tax, and taxes on assets, all of which are paid by an individual [taxpayer](https://www.investopedia.com/terms/t/taxpayer.asp) directly to the government.

### Key Takeaways

*   A direct tax is paid by an individual or organization to the entity that levied the tax.
*   Direct taxes include income taxes, property taxes, and taxes on assets.
*   There are also indirect taxes, such as sales taxes, where a tax is levied on the seller but paid by the buyer.

![Direct Tax: A tax that a person or organization pays directly to the entity that imposed it.](https://www.investopedia.com/thmb/6WwKv6kyputOMY4rz1WmF7DSWlc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/directtax.asp-final-ade8c778d3c84665973b7b978c963015.png)

*Income taxes, property taxes, and taxes on capital gains are examples of direct taxes. — Zoe Hansen / Investopedia*

## The History of Direct Taxes

The modern distinction between direct taxes and indirect taxes came about with the ratification of the [16th Amendment](https://www.investopedia.com/terms/s/sixteenth-amendment.asp) to the U.S. Constitution in 1913. Before the 16th Amendment, tax law in the United States was written so that direct taxes had to be directly apportioned to a state’s population. A state with a population that was 75% of the size of another state’s, for example, would only be required to pay direct taxes equal to 75% of the larger state’s tax bill.

This antiquated verbiage created a situation in which the federal government could not impose many direct taxes, such as a personal income tax, due to apportionment requirements. However, the advent of the 16th Amendment changed the [tax code](https://www.investopedia.com/understanding-us-tax-code-8731466) and allowed for the levying of numerous direct and indirect taxes.

> **Important**
>
> Examples of indirect taxes include excise duties on fuel, liquor, and cigarettes as well as a value-added tax (VAT), also referred to as a consumption tax.

## Examples of Direct Taxes

[Corporate taxes](https://www.investopedia.com/terms/c/corporatetax.asp) are an example of direct taxes. If, for example, a manufacturing company reports $1 million in [revenue](https://www.investopedia.com/terms/r/revenue.asp), $500,000 in the [cost of goods sold (COGS)](https://www.investopedia.com/terms/c/cogs.asp), and $100,000 in [operating costs](https://www.investopedia.com/terms/o/operating-cost.asp), its [earnings before interest, taxes, depreciation, and amortization (EBITDA)](https://www.investopedia.com/terms/e/ebitda.asp) would be $400,000. If the company has no debt, depreciation, or amortization, and has a corporate tax rate of 21%, its direct tax would be $84,000 ($400,000 × 0.21 = $84,000).

An individual’s federal income tax is another example of a direct tax. If a person makes $100,000 in a year, for example, and owes the government $20,000 in taxes, that $20,000 would be a direct tax.

There are a number of other direct taxes that are common in the U.S., such as the [property taxes](https://www.investopedia.com/terms/p/propertytax.asp) that homeowners are required to pay. Those are typically collected by local governments and based on the assessed value of the property.

Other types of direct taxes in the U.S. and elsewhere include [use taxes](https://www.investopedia.com/terms/u/use-tax.asp) (such as vehicle licensing and registration fees), [estate taxes](https://www.investopedia.com/terms/e/estatetax.asp), [gift taxes](https://www.investopedia.com/terms/g/gifttax.asp), and so-called [sin taxes](https://www.investopedia.com/terms/s/sin_tax.asp) on liquor and cigarettes, for example.

## What Is the Difference Between Direct Tax and Indirect Tax?

Direct taxes cannot be shifted to another party and remain your responsibility to pay. Indirect taxes are the opposite. Whoever is liable for these taxes can pass on or shift them to another person or group.  

## What Are Examples of Direct Taxes?

Direct taxes are taxes paid directly to the party that levied them, such as the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp). Common examples include income, [capital gains](https://www.investopedia.com/terms/c/capital_gains_tax.asp), or property taxes that a taxpayer pays to the government.

## What Are Some Examples of Indirect Taxes?

Common examples of indirect taxes include sales tax, excise tax, value-added tax (VAT), and [goods and services tax (GST)](https://www.investopedia.com/terms/g/gst.asp). Businesses often get individual consumers to foot the bill and cover these costs by charging higher prices.

## Can Direct Taxes Be Forwarded to Someone Else?

No, direct taxes cannot be passed on to a different person or entity. The individual or organization that the tax is levied on is responsible for paying it.

## The Bottom Line

With a direct tax, you pay taxes straight to the tax body, like the IRS. Capital gains taxes are a type of direct tax.

A direct tax is the opposite of an [indirect tax](https://www.investopedia.com/terms/i/indirecttax.asp), where the tax is levied on one entity, such as a seller, and paid by another—such as a [sales tax](https://www.investopedia.com/terms/s/salestax.asp) paid by the buyer in a retail setting.

Both kinds of taxes are important revenue sources for governments.

> **Article Sources**
>
> 1.  National Constitution Center. “[Direct and Indirect Taxes](https://constitutioncenter.org/interactive-constitution/interpretation/article-i/clauses/757).”
>     
> 2.  Internal Revenue Service. “[Historical Highlights of the IRS](https://www.irs.gov/newsroom/historical-highlights-of-the-irs).”
>     
> 3.  Internal Revenue Service. “[Understanding Taxes: What Is Taxed and Why—Direct and Indirect Taxes](https://apps.irs.gov/app/understandingTaxes/student/whys_thm04_les04.jsp).”