Each of the following events results in a tax payment. Which is an example of an indirect tax?

• A. A corporation pays corporate income tax on its profits.
• B. An individual pays income tax on their salary.
• C. A homeowner pays property tax to the local government.
• D. A consumer pays sales tax when purchasing a good at a store.

Answer: (D)

Verified step by step guidance

1. Understand the difference between direct and indirect taxes. Direct taxes are paid directly to the government by the individual or organization on whom it is imposed, such as income tax or property tax.
2. Identify examples of direct taxes in the problem: corporate income tax, individual income tax, and property tax are all direct taxes because they are paid directly by the taxpayer to the government.
3. Recognize that an indirect tax is collected by an intermediary (like a retailer) from the person who ultimately bears the tax burden, such as sales tax or value-added tax (VAT).
4. Analyze the example of a consumer paying sales tax when purchasing a good at a store. The store collects the tax from the consumer and then remits it to the government, making this an indirect tax.
5. Conclude that the correct example of an indirect tax in the problem is the sales tax paid by the consumer at the point of purchase.