What are derived taxes?

Derived taxes are those that are assessed on exchange transactions, meaning they are generated from specific actions or transactions of taxpayers, typically linked directly to a purchase or sale. For example, sales taxes are considered derived taxes as they are based on the exchange of goods and services between buyers and sellers. These taxes arise when there is an economic transaction, where both parties agree to the terms of exchange.

In contrast, taxes on investments and property generally pertain to wealth- or asset-based taxation, not directly tied to transactions. Taxes assessed on nonexchange transactions involve the receipt of resources without an equivalent exchange, such as donations or grants, which don't fit the derived definition as they aren't linked to a transaction-based activity. Finally, taxes collected from fines and penalties are based on violations of laws or regulations, again not presenting an exchange transaction scenario as established by the taxpayer's voluntary participation in a market exchange.