Direct Vs. Indirect Taxes

Written by deanne lachner
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Direct Vs. Indirect Taxes
Taxes are collected both directly and indirectly. (Image by, courtesy of woodley wonderworks)

Federal, state, local, school, property, inheritance, sales -- these are all forms of taxes. Everyone who earns or spends money pays taxes in one form or another, whether by direct or indirect means.

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A tax is a charge from a government based on wealth, consumption, activity or income.


The collection of taxes benefits everyone in some way. Federal taxes pay for health care, national defence, social services such as housing and food stamps, and Social Security. State taxes pay for items such as highways, schools, prisons and social services. Local taxes pay for firefighters and police, garbage pickup, water services and state schools.


Direct taxes are those that must be paid for income or property. All who have income of any sort or who own property must pay direct taxes. State, federal and property taxes are direct taxes.


Indirect taxes are paid when people purchase goods or services or when they participate in activities. Only those who partake of these goods, services and activities will pay indirect taxes. Sales tax, excise taxes and value-added taxes are examples of indirect taxes.

Fun Fact

Tax codes and regulations dictate the who, what, when, where and how of taxation. Interestingly, the tax code in 2003 contained 54,846 pages. Were all of these printed and stacked, they would form an 18-foot-tall tower of paper.

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