Direct tax

Although the actual definitions vary between jurisdictions, in general, a direct tax is a tax imposed upon a person or property as distinct from a tax imposed upon a transaction, which is described as an indirect tax. There is a distinction between direct and indirect taxes depending on whether the tax is paid by the actual taxpayer or if the amount of tax is supported by a third party, usually a client. The term may be used in economic and political analyses, and may have legal implications in some jurisdictions.

In the United States of America, the term has special constitutional significance because of two provisions in the U.S. Constitution that any direct taxes imposed by the federal government must be apportioned among the states on the basis of population.

It is also significant in the European Union, where direct taxation remains the sole responsibility of member states.

The concept of a direct tax also has constitutional significance in Canada. Under the Constitution Act, 1867, the federal Parliament can impose any type of tax, whether direct or indirect. However, the provinces are only authorised to impose direct taxes. There has been considerable litigation over the scope of the provincial direct tax power.