What Is Luxury Car Tax?

The U.S. briefly implemented a luxury car tax between 1991 and 2002. Automobiles valued at ​more than $30,000​ were subject to an extra ​10 percent​ surcharge tax. The same tax also applied to expensive boats, airplanes, furs, jewelry and other items deemed non-essential. There is currently no luxury car tax in the U.S., but other car taxes do exist.


  • A luxury car tax imposes an extra surcharge tax on cars above a certain value. The U.S. luxury car tax ended in 2002.

U.S. Luxury Car Tax History

According to Investopedia, the luxury tax enacted in 1991 was meant to raise funds for the nation's debt. However, instead of purchasing products above the tax threshold and paying the 10 percent surcharge tax, consumers responded to this new tax by purchasing luxury items below the tax threshold. Others simply held on to their money and waited for the tax to be repealed.

Because the affected industries – especially the yacht industry – suffered economic losses, many workers lost their jobs. As a result, the tax was repealed in 1993 for all luxury items except cars.

The luxury car tax lasted ​until 2002,​ with 700,000 vehicle sales being subject to the tax during its final year. According to a Washington Post article, the luxury car tax raised an average of $400 to $450 million each year. However, the impact on small businesses – who often had to pay for the tax themselves – remained a significant motivation for phasing out this tax.

Current U.S. Car Taxes

These days, you won't get charged an extra tax for purchasing an expensive car, but the government continues to tax cars in other ways. For example, most states require you to pay a yearly motor vehicle property tax to the Department of Motor Vehicles, which is typically paid when you renew your vehicle registration and get new car tags.

The motor vehicle property tax rate varies from state to state, ranging from no tax to eight percent. Alaska, New Hampshire and Montana have no statewide motor vehicle property tax. In Arkansas, the District of Columbia and Oregon, certain vehicles are eligible for zero property tax.

You may also be responsible for paying a motor vehicle property tax at the county, city and/or district level. Visit FactoryWarrantyList.com for a quick summary of each state's requirements.

Motor Vehicle Sales Taxes

Vehicle sales are subject to a sales tax in most states. This tax is paid when the title is transferred. According to AutoList.com, cars are not subject to a sales tax in Alaska, Delaware, Montana, New Hampshire, New Mexico and Oregon. In all other states, you must pay a sales tax to the state and possibly to the county or municipal government as well.

Federal Gas Guzzler Tax

The "gas guzzler" tax is imposed at the federal level to discourage the import of passenger vehicles with low gas mileage. Only vehicle manufacturers and importers need to worry about filing IRS Form 6197 to pay the gas guzzler tax.

According to Investopedia, passenger vehicles with a fuel economy of ​fewer than 22.5 miles​ per gallon that are not considered a truck or SUV are subject to the gas guzzler tax. The tax rate increases as the fuel economy decreases. For example, someone importing or manufacturing a passenger vehicle with a fuel economy of fewer than 12.5 miles per gallon must pay a tax rate nearly seven times that of a passenger vehicle that gets 21.5 miles per gallon.