Commonly Used Tax Terms

TERM	DESCRIPTION

Consumption tax	A tax levied on sales of goods or services. Consumption taxes include general sales taxes, excise taxes, value-added taxes, and tariffs.
Corporation income tax	A tax on the profits, or net income (total income minus costs), of corporations.
Direct tax	A tax whose burden falls directly on the person or thing taxed and cannot be shifted to another person or thing. A poll tax is an example of a direct tax.
Estate tax	A tax on the property (including real, personal, and intangible property) left by a person at death.
Excise tax	A selective sales tax, imposed only on the sale of specific goods.
Gift tax	A tax on the value of gifts received by an individual in excess of a certain sum per year and over a certain cumulative amount over a person's lifetime.
Horizontal equity	The principle that people in equal positions or situations should pay the same amount of tax.
Indirect tax	A tax imposed on one person or thing but whose burden is borne indirectly by another. A sales tax, though imposed on and collected from the seller, is an indirect tax on the buyer.
Individual income tax	A tax on the income of individuals or families, generally applied to wages, salaries, tips, interest, and dividends. Also called personal income tax.
Inheritance tax	A tax on the income (including property) received by an heir from the estate of a person who has died. Bequests to charitable organizations are not taxed.
Marginal tax rate	The tax rate applied to a particular tax bracket (a designated range of taxable income).
Payroll tax	A tax on wages and salaries (income earned for work), used to finance social insurance programs that provide benefits to the poor, the elderly, the unemployed, and the disabled.
Poll tax	A tax of a specific monetary amount imposed directly on an individual. Also called a lump-sum tax or head tax. In the United States, the term also refers to a tax (now prohibited) imposed on citizens as a requirement for voting.
Pollution tax	A tax levied on a company that produces air, water, or soil pollution over a certain level established by the government.
Progressive tax	Generally, a tax that imposes a heavier burden on those more able to bear the burden than on those less able to bear it. When applied to income, which is the most important tax base in developed countries, a progressive tax is one that takes a greater percentage of income from those with higher incomes than from those with lower incomes.
Property tax	A tax on property, usually meaning only real property, such as land, buildings or houses, and machinery. Personal property, such as furniture, vehicles, or jewelry, is largely excluded, as is intangible property, such as money, stocks, bonds, or bank deposits.
Proportional tax	A tax that imposes the same burden on people or takes the same percentage of each person's income.
Regressive tax	A tax that imposes a heavier burden on those less able to bear it. Applied to income, it is a tax that takes a greater percentage of income from people with low incomes than from those with high incomes.
Sales tax, general	A tax imposed on the sale of a wide range of goods and services. Although collected from sellers at the retail level, consumers bear the cost of sales taxes.
Tariff	A tax levied on imported or exported goods. Also called duty or customs duty.
Tax base	The object on which a tax is based or calculated, such as income (the base of the income tax), property (the base of the property tax), or the individual (the base of the poll tax).
Tax incidence	The way a tax affects people. The statutory incidence of a tax refers to who must legally pay the tax. The economic incidence of a tax refers to who bears the actual burden of a tax.
Tax rate	The percentage of the value of the tax base that must be paid in tax, or the amount of tax charged in the case of a direct poll tax.
Tax schedule	The set of rates applicable to different amounts of the tax base. Under the income tax, for example, the schedule shows the rates applicable at each level of income.
Value-added tax	A percentage tax on the value added to goods or services at each stage of production and distribution. As with general sales taxes, consumers bear the final burden of value-added taxes.
Vertical equity	The principle that a tax system should distribute burden fairly across people with different abilities to pay.