There is no broad federal luxury tax in the United States today. Congress created one in 1990 covering expensive cars, boats, aircraft, jewelry, and furs, repealed most of it in 1993, and let the last remaining piece expire at the end of 2002. The only federal excise that still works anything like a luxury tax is the gas guzzler tax on fuel-inefficient passenger cars.
What the 1990 Luxury Tax Covered
The luxury excise came out of the Omnibus Budget Reconciliation Act of 1990.1Congress.gov. H.R. 5835 – Omnibus Budget Reconciliation Act of 1990 It imposed a 10 percent tax on the portion of a purchase price above a set threshold in five categories:
- Passenger vehicles
- Boats above $100,000
- Private aircraft above $250,000
- Jewelry above $10,000
- Furs above $10,000
The vehicle piece, under 26 U.S.C. § 4001, applied only to four-wheeled vehicles built for public roads and rated at 6,000 pounds unloaded gross vehicle weight or less. Limousines were in regardless of weight.2Office of the Law Revision Counsel. 26 USC 4001 – Imposition of Tax The 10 percent only hit the amount above the threshold, so a buyer paid the surcharge on the “luxury portion” of the price rather than the full sticker.
Why the Federal Luxury Tax Went Away
The tax misfired quickly on the water. Demand for luxury boats proved highly sensitive to price, sales dropped sharply once the tax took effect, and the boat-building industry shed thousands of jobs within the first year. Unemployment benefits and lost income-tax receipts from laid-off workers exceeded what the tax brought in.
Congress repealed the luxury tax on boats, aircraft, jewelry, and furs in the Omnibus Budget Reconciliation Act of 1993, refunding taxes already paid on 1993 purchases. The amendment to § 4001 also struck the subchapter references to those categories, leaving only passenger vehicles subject to the excise.3Office of the Law Revision Counsel. 26 USC 4001 – Imposition of Tax The remaining vehicle tax carried its own expiration: under the statute’s termination clause, it stopped applying to sales after December 31, 2002.4GovInfo. 26 USC 4001 – Imposition of Tax Nothing has replaced it at the federal level.
The Gas Guzzler Tax: The Only Federal Luxury-Style Excise Left
The gas guzzler tax under 26 U.S.C. § 4064 is the closest thing the federal code still has to a luxury tax on cars. It targets fuel economy rather than price, but many high-performance luxury cars fall into it because of their mileage. The manufacturer or importer legally owes the tax, and dealers typically fold it into what the buyer pays.5Internal Revenue Service. About Form 6197, Gas Guzzler Tax
It applies to any passenger car rated at 6,000 pounds unloaded gross vehicle weight or less that gets below 22.5 miles per gallon. A car at 22.5 mpg or better owes nothing. Rates climb with inefficiency:6Office of the Law Revision Counsel. 26 USC 4064 – Gas Guzzler Tax
- 21.5 to 22.4 mpg: $1,000
- 20.5 to 21.4 mpg: $1,300
- 19.5 to 20.4 mpg: $1,700
- 18.5 to 19.4 mpg: $2,100
- 17.5 to 18.4 mpg: $2,600
- 16.5 to 17.4 mpg: $3,000
- 15.5 to 16.4 mpg: $3,700
- 14.5 to 15.4 mpg: $4,500
- 13.5 to 14.4 mpg: $5,400
- 12.5 to 13.4 mpg: $6,400
- Below 12.5 mpg: $7,700
What the Gas Guzzler Tax Does Not Cover
The statute only reaches vehicles classified as “automobiles,” which excludes anything the Department of Transportation treats as a nonpassenger vehicle. SUVs, pickup trucks, and minivans are out, even when they burn more fuel than the sedans and sports cars that get taxed. Ambulances, police cars, and other emergency vehicles are also excluded, and anything over 6,000 pounds unloaded falls outside the definition regardless of mileage.6Office of the Law Revision Counsel. 26 USC 4064 – Gas Guzzler Tax
Where Luxury Taxes Still Exist
State and local governments have picked up some of what the federal government dropped. The most common version is a “mansion tax,” an extra transfer tax on real estate sales above a set price, generally starting around $1 million with rates from roughly 1 percent to over 5 percent. Some jurisdictions stack rate tiers so the effective tax rises sharply on the priciest properties.
Outside real estate, no state adds a separate luxury surcharge on top of its ordinary sales tax for items like jewelry, furs, or high-end vehicles. Those goods carry the same sales tax rate as anything else sold in the state.
If you are used to a Canadian-style luxury tax and expected something similar here, note that Canada’s Select Luxury Items Tax Act, in force since 2022, covers vehicles and aircraft above $100,000 and vessels above $250,000, with the tax set at the lesser of 10 percent of the full price or 20 percent of the amount above the threshold.7Canada Revenue Agency. LTN2 Subject Vehicles Under the Select Luxury Items Tax Act8Justice Laws Website. Select Luxury Items Tax Act The United States has no equivalent at the federal level.