Direct Tax Law and Legal Definition

A direct tax is a tax that cannot be shifted to others, such as the federal income tax. Taxes can be either direct or indirect. A direct tax is one that the taxpayer pays directly to the government and cannot be shifted to others. Examples include personal property taxes paid directly to the government by a homeowner and federal income taxes paid by a family.

An indirect tax can be passed on to another person or group. A business may recover the cost of the taxes it pays by charging higher prices to customers. A tax shift occurs when the business shifts its taxes to others.