Tax Incidence Law and Legal Definition

Tax Incidence is the ultimate payment of a tax. Many taxes are initially paid by one person, but passed along through production and consumption activities until it finally reaches someone else. An obvious example is the sales tax. While officially paid by the retail store, it's tracked on to the prices paid by consumers. Consumers, thus, bear the big share of most sales taxes. Some taxes are paid by producers early in production such as severance taxes on oil extraction without the knowledge of consumers, who end up paying through higher prices. As a general rule taxes are passed through the system until they reach someone who can pass it no further.