Nothing is certain in life, they say, except for death and taxes. We all have to deal with taxes in one way or another, which would lead the average person to believe that we all have a relatively firm grasp on what taxes we pay. On the contrary, most of us are surprisingly uninformed about our taxes and how they work. There are actually two kinds of taxes that all of us pay–direct and indirect. While we all pay these taxes, very few of us really understand the difference between them. In order to be an informed citizen and an intelligent consumer, it is important to know the difference between direct and indirect taxes.
Some taxes are relatively straightforward and simple, while others can be rather complicated. A direct tax, to begin, is a tax that is imposed directly onto a specific group of people or organizations, and collected directly from them. Income tax, for example, is a tax that is imposed directly onto people in the United States who earn an income. This tax is collected directly from them, either in the form of pay withholding or a personal payment after filing. When you pay your income tax, you are being taxed directly, and if you overpay on this direct tax you are issued a direct refund.
Indirect taxes work in a rather different way. When an indirect tax is imposed, the tax is collected from someone other than the individual or entity responsible for the tax. If that sounds unusual, or possibly even criminal, think about it on a deeper level to see what is really happening. Consider sales tax. Depending on the city and state in which you live, you might pay a tax of anywhere from zero to ten percent on the items you purchase. This sales tax is imposed on the vendors who sell the items, but it is absorbed by the consumers who buy them.
