Direct tax
The term direct tax generally means a tax paid directly to the government by the persons on whom it is imposed.
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[edit] General meaning
A direct tax is one imposed upon an individual person (juristic or natural) or on property, as distinct from a tax imposed upon a transaction. Indirect taxes such as a sales tax or a value added tax (VAT) are imposed only if and when a taxable transaction occurs; people have the freedom to engage in or refrain from such transactions; whereas a direct tax is imposed upon a person, typically in an unconditional manner, such as a poll-tax or head-tax, which is imposed on the basis of the person's very life or existence, or a property tax which is imposed upon the owner by virtue of ownership, rather than commercial use. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be."[1]
The unconditional, inexorable aspect of the direct tax was a paramount concern of people in the 18th century seeking to escape tyrannical forms of government and to safeguard individual liberty. An 18th century writing about this kind of taxation explained:
| “ | The power of direct taxation applies to every individual ... 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. ...
The power of direct taxation will further apply to every individual ... 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. [2] |
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[edit] U.S. constitutional law sense
In the United States, the term "direct tax" has acquired specific meaning under constitutional law: a direct tax is a tax on property "by reason of its ownership"[3] (such as an ordinary real estate property tax imposed on the person owning the property as of January 1 of each year) as well as a capitation (a "head tax").[4] In the late 19th century, U.S. courts also began to treat an income tax on income from property as a direct tax.[5] In U.S. constitutional law, an "indirect tax" or "excise" is an "event" tax.[6] 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.[7] 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."[8]
In the United States, Article I, Section 2, Clause 3 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).[9]
[edit] References
[edit] Sources
- Foster, Robert (1895). Commentaries on the Constitution of the United States: Historical and Judicial. 1. Boston: The Boston Book Co.. pp. 415–423. http://books.google.com/books?id=Rd49AAAAIAAJ&printsec=titlepage&source=gbs_summary_r&cad=0#PPA415,M1.
[edit] Notes
- ^ Britannica Online, Article on Taxation. See also Financial Dictionary Online, Article on Direct taxes.
- ^ The Address and Reasons of Dissent of the Minority of the Convention, of the State of Pennsylvania, to their constituents.
- ^ See, e.g., the United States Supreme Court case of Fernandez v. Wiener, in which the Court stated that a direct tax is a tax "which falls upon the owner merely because he is owner, regardless of his use or disposition of the property." Fernandez v. Wiener, 326 U.S. 340, 66 S. Ct. 178, 45-2 U.S. Tax Cas. (CCH) ¶10,239 (1945).
- ^ A capitation is defined as a "poll tax". Black's Law Dictionary, p. 191 (5th ed. 1979). A poll tax is defined as a "capitation tax; a tax of a specific sum levied upon each person within the jurisdiction of the taxing power and within a certain class (as, all males of a certain age, etc.) without reference to his property or lack of it." Black's Law Dictionary, p. 1043 (5th ed. 1979). 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).
- ^ Also, see generally subsection (d), paragraph (3) of 26 U.S.C. § 7602. See also 26 U.S.C. § 2056A, subsection (b); 26 U.S.C. § 2701, subsection (d); 26 U.S.C. § 4961; 26 U.S.C. § 4962; 26 U.S.C. § 4963.
- ^ 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).
