A tax imposed on businesses, rather than directly on consumers is known as what?

• A. No taxation without representation
• B. Direct tax
• C. Indirect tax
• D. Massachusetts Circular

Answer: (C)

Indirect taxes are taxes on goods and services collected through businesses at the point of sale, with the consumer ultimately paying the tax through higher prices. The government sets the tax on the transaction, but a business acts as the collector and remits the money to the government. Because the tax is tied to the sale rather than to a person’s income or a company’s profits, the business handles the collection while the burden often falls on the buyer. Classic examples are sales taxes, value-added taxes, and excise duties on items like fuel or alcohol. Direct taxes, by contrast, are paid straight by individuals or organizations on income or property (such as income tax or corporate profits tax). The other options are not tax types describing this arrangement, whereas an indirect tax fits the scenario of a levy on business transactions that ends up borne by consumers.