Luxury Tax – USA

According to the American International Automobile Dealers Association (AIADA), as of January 1, 1991, the federal government began imposing a luxury tax on automobiles. Initially assessed at 10 % of the amount of the negotiated selling price in excess of $30,000.

As of January 1, 2001, the luxury tax is now calculated at 4% of the amount of the selling price in excess of $38,000. The tax is triggered by the first retail sale or lease of a vehicle and is paid by the retail dealer. Because of the luxury tax phase out signed into law in August 1996, the luxury tax will phase out on the following schedule:

January 1, 2001 4%
January 1, 2002 3%
January 1, 2003 0%

Note: the tax threshold will continue to index at the rate of inflation.

The Balanced Budget Agreement signed into law by President Clinton on August 5, 1997 included additional provisions providing for additional auto luxury tax relief for dealers.

* Exempt certain electric and other clean-fuel vehicles from the luxury tax.

* Bring the 10 percent luxury tax imposed on the purchase of vehicle parts and accessories into compliance with the luxury tax phaseout included in the Small Business Job Protection Act of 1996. The rate on parts and accessories purchased for vehicles subject to the luxury tax will be taxed at 5 percent.

The American International Automobile Dealers Association is a not for profit trade association dedicated to the representation of America’s international nameplate automobile dealer. The members of AIADA are the franchised new car and truck dealers that serve as the backbone of the auto industry. Offices are located at 99 Canal Center Plaza, Suite 500, Alexandria, Virginia 22314. Phone number is (703) 519-7800, and fax number is (703) 519-7810.

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