Tax incidence

The actual distribution of the tax burden, as opposed to the legal liability. When a company is taxed, the cost is passed on to shareholders (via lower dividends), customers (via higher prices), or workers (via lower wages). This chain of impact can be complicated, and sales taxes paid by consumers may result in lower demand and hit the profits of retailers. Tax incidence is sometimes referred to as the “effective” incidence of a tax, in contrast to its “formal” incidence.