There is no general federal luxury tax in the United States today, so how much luxury tax you pay depends entirely on what you’re buying and where. A US federal 10% luxury tax on cars, boats, aircraft, jewelry, and furs existed from 1991 until it expired on January 1, 2003. What replaced it is a patchwork: two federal excise taxes aimed at specific vehicles, a handful of state surcharges on high-value goods, and, north of the border, Canada’s Select Luxury Items Tax on vehicles, aircraft, and vessels above set price thresholds.
US Federal Excise Taxes on High-Value Vehicles
Two federal taxes function like a luxury tax on specific vehicle categories.
The first is a 12% retail excise tax on heavy trucks, trailers, and highway tractors. It applies to truck chassis and bodies for vehicles with a gross weight above 33,000 pounds, trailer chassis and bodies above 26,000 pounds, and tractors above 19,500 pounds used in highway combinations above 33,000 pounds combined weight.1Office of the Law Revision Counsel. 26 USC 4051 – Imposition of Tax on Heavy Trucks and Trailers Sold at Retail The 12% rate hits the full sales price, including parts and accessories attached at the time of sale.
The second is the gas guzzler tax, paid by manufacturers and importers on passenger cars that miss federal fuel economy standards. The amount is tiered by mpg rating, from $1,000 for cars rated between 21.5 and 22.5 mpg up to $7,700 for cars rated below 12.5 mpg. Cars at 22.5 mpg or better owe nothing.2Office of the Law Revision Counsel. 26 USC 4064 – Gas Guzzler Tax
One important boundary: the gas guzzler statute defines “automobile” as a four-wheeled vehicle rated at 6,000 pounds unloaded gross vehicle weight or less.2Office of the Law Revision Counsel. 26 USC 4064 – Gas Guzzler Tax Most full-size SUVs, pickup trucks, and large crossovers fall outside that definition and owe no gas guzzler tax no matter how much fuel they burn.
State Luxury Surcharges
A few states apply an elevated sales tax rate to specific high-value purchases. Connecticut is the most developed example. The general sales tax is 6.35%, but a 7.75% rate applies to:3Connecticut State Department of Revenue Services. Tax Information
- Motor vehicles priced above $50,000
- Jewelry priced above $5,000
- Clothing, footwear, handbags, luggage, umbrellas, wallets, and watches priced above $1,000
Watch how the threshold works. The 7.75% rate hits the entire purchase price, not just the amount above the cutoff. A $49,999 vehicle is taxed at 6.35% (about $3,175). Add one dollar to the price and the whole $50,000 gets taxed at 7.75% (about $3,953). Buyers negotiating near a threshold can save hundreds by staying under it.
Several states also charge supplemental transfer taxes on real estate sales, sometimes called “mansion taxes,” with thresholds that typically start at $1 million. These usually apply only to the portion of the price above the threshold rather than the full amount.
Canada’s Select Luxury Items Tax
Canada enacted the Select Luxury Items Tax Act, which sets price thresholds by category:4Canada Revenue Agency (CRA). LTN2 Subject Vehicles Under the Select Luxury Items Tax Act
- Vehicles and aircraft priced above $100,000
- Vessels priced above $250,000
The thresholds sit in the statute and are not indexed for inflation.5Justice Laws (Government of Canada). Select Luxury Items Tax Act – Full Text Tax is owed at the point of sale or on importation.
How the Tax Is Calculated
For each item, the vendor works out two figures and charges whichever is lower:6Government of Canada. Consideration and Retail Value
- 10% of the full taxable amount
- 20% of the amount by which the taxable amount exceeds the threshold
For prices just above the threshold, the 20% calculation is lower and caps the bill. For prices well above the threshold, the flat 10% eventually becomes the lower number. The crossover point is $200,000 for vehicles and aircraft and $500,000 for vessels.
A $150,000 vehicle: 10% of $150,000 is $15,000; 20% of the $50,000 above the threshold is $10,000. You pay $10,000.4Canada Revenue Agency (CRA). LTN2 Subject Vehicles Under the Select Luxury Items Tax Act
A $300,000 vessel: 10% of $300,000 is $30,000; 20% of the $50,000 above the $250,000 threshold is $10,000. You pay $10,000.
A $214,000 vehicle (with improvements and fees folded into the taxable amount): 10% of $214,000 is $21,400; 20% of $114,000 is $22,800. You pay $21,400 because the flat 10% is now lower.6Government of Canada. Consideration and Retail Value
The taxable amount is not just the sticker price. It also includes dealer-installed improvements, incidental items, freight charges, and certain levies. Extended warranties and items like winter tires are left out of the luxury tax calculation, though they still attract GST/HST.
Exemptions
Several vehicle types are carved out regardless of price:4Canada Revenue Agency (CRA). LTN2 Subject Vehicles Under the Select Luxury Items Tax Act
- Ambulances and hearses
- Vehicles clearly marked for policing
- Vehicles marked and equipped for emergency medical or fire response
Modifications adapting a vehicle for wheelchair accessibility or auxiliary driving controls for a person with a disability don’t count as taxable improvements.5Justice Laws (Government of Canada). Select Luxury Items Tax Act – Full Text Repairs, cleaning, maintenance, and replacement of damaged parts also stay out of the taxable amount. A buyer who exports the item without using or registering it in Canada can trigger a vendor rebate if the export happens as soon as reasonably possible and evidence satisfies the Minister.
Importing a Luxury Item
Individuals bringing a luxury item into Canada for personal use owe the tax at the border, declared and paid alongside customs duties.7Canada Border Services Agency. Memorandum D18-4-1 – Select Luxury Items Tax on Importation Vessels imported temporarily for storage or repair can defer the tax for up to 12 months; after that, it’s payable immediately.
Filing and Penalties
US businesses that owe excise tax on heavy vehicles or gas guzzlers report and pay it quarterly on IRS Form 720, due by the end of the month following each calendar quarter.8Internal Revenue Service. Instructions for Form 720 The general failure-to-file penalty is 5% of the unpaid tax per month, capped at 25%.9Internal Revenue Service. Failure to File Penalty If excise tax was collected from buyers and not remitted, the trust fund recovery penalty equals the full unpaid amount.
In Canada, registered vendors file a Luxury Tax and Information Return (Form B500) for every reporting period, even one with no sales.10Government of Canada. Completing a Luxury Tax and Information Return for Registrants Evasion carries a fine of 50% to 200% of the amount avoided, plus possible imprisonment.5Justice Laws (Government of Canada). Select Luxury Items Tax Act – Full Text Payments of $10,000 or more must be made electronically.