U.S. Constitutional Law Sense
In the United States, the term "direct tax" has acquired specific meaning under constitutional law: a direct tax is a tax on property "by reason of its ownership" (such as an ordinary real estate property tax imposed on the person owning the property as of January 1 of each year) as well as a capitation (a "tax per head"). Income taxes on income from personal services such as wages are also indirect taxes in this sense. The United States Court of Appeals for the District of Columbia Circuit has stated: "Only three taxes are definitely known to be direct: (1) a capitation, (2) a tax upon real property, and (3) a tax upon personal property." In National Federation of Independent Business v. Sebelius, the Supreme Court held that a penalty directly imposed upon individuals for failure to possess health insurance, though a tax for constitutional purposes, is not a direct tax. The Court reasoned that the tax is not a capitation because not everyone will be required to pay it, nor is it a tax on property. Rather "it is triggered by specific circumstances."
In the United States, Article I, Section 2, Clause 3 of the Constitution requires that direct taxes imposed by the national government be apportioned among the states on the basis of population. After the 1895 Pollock ruling (essentially, that taxes on income from property should be treated as direct taxes), this provision made it difficult for Congress to impose a national income tax that applied to all forms of income until the 16th Amendment was ratified in 1913. After the Sixteenth Amendment, no Federal income taxes are required to be apportioned, regardless of whether they are direct taxes (taxes on income from property) or indirect taxes (all other income taxes).
Read more about this topic: Direct Tax
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