The luxury tax was enacted in 1991 with the intention of raising funds for the nation's debt. However, instead of buying products above the tax threshold and paying the 10 percent surcharge, consumers responded to this new tax by buying luxury goods below the tax threshold or simply holding onto their money and waiting for the tax to be repealed. This caused economic losses in affected industries, particularly the yacht industry, resulting in job losses. As a result, the tax was repealed in 1993 for all luxury items except cars. Today, you won't be charged an additional tax for buying an expensive car, but the government continues to tax cars in other ways.
For example, most states require you to pay an annual motor vehicle property tax to the Department of Motor Vehicles, which is normally paid when you renew your vehicle registration and obtain new license plates. The property tax rate for motor vehicles varies from state to state, ranging from zero taxes to eight percent. Alaska, New Hampshire, and Montana have no state motor vehicle property taxes. In Arkansas, the District of Columbia and Oregon, certain vehicles are eligible for zero property taxes. Gasoline consumption tax is imposed at federal level to discourage importation of fuel-efficient passenger vehicles.
Only vehicle manufacturers and importers should be concerned about filing IRS Form 6197 to pay gasoline consumption tax. Passenger vehicles with a fuel economy of less than 22.5 miles per gallon that are not considered trucks or SUVs are subject to gasoline consumption tax. Tax Rate Increases as Fuel Economy Declines. For example, someone who imports or manufactures a passenger car with a fuel economy of less than 12.5 miles per gallon must pay a tax rate nearly seven times higher than that of a passenger car that receives 21.5 miles per gallon. Prior to this, Australia had a long history of taxing luxury cars, dating back to the Wholesale Sales Tax (WST), a precursor to GST, which saw luxury cars taxed at a higher rate than non-luxury cars.
The luxury car tax lasted until 2002, with 700,000 vehicle sales subject to tax during its final year. For example, Australia continues to impose a fairly high luxury car tax on vehicles that exceeds the government threshold amount. In a research report on Australia's automotive manufacturing industry, it is explained that the LCT was “designed to maintain this higher tax rate, so that the price of luxury cars did not fall drastically”. The main criticism is that the tax covers cars that are definitely not “luxury” in the traditional sense, especially now that there are no cars made in Australia. Luxury car sales fell rapidly after the implementation of the tax, experiencing a five percent year-on-year contraction despite reporting growth of more than 10 percent year-on-year before the tax was implemented. The type of car you select determines not only how much you pay for the vehicle, but also what taxes you pay and how much it costs to maintain and drive the car. The ATO states that the luxury car tax only applies to eligible vehicles under two years of age, starting from the date they were imported into Australia or manufactured here.
As you can see, with particularly expensive luxury vehicles, this can increase the cost of the new car considerably. Although the luxury car tax is no longer levied in the United States, it is still levied in other countries. It has been simplified to make it easier for consumers to know exactly what they are being charged while charging imported luxury cars. However, drivers in the United States no longer have to worry about this additional cost. In case you haven't heard yet, the federal budget just announced includes a new luxury tax on yachts, planes and cars. This tax was collected in addition to any luxury car sales taxes levied by some state governments.