Guides · Luxury taxes

What is a luxury tax?

A luxury tax is a tax charged only on goods priced above a threshold, or only on goods treated as non-essential. The United States tried one in 1991 and abandoned most of it within three years; Canada, Australia, the UK and Italy still levy narrower versions today.

The definition

“Luxury tax” is not a single legal category. In practice the term covers three designs:

• Threshold excises — a separate tax on the part of the price above a set amount (the 1990 US tax, Canada’s and Australia’s current taxes).
• Surcharges inside an existing tax — a higher annual vehicle tax for expensive or powerful cars (the UK expensive car supplement, Italy’s superbollo).
• Higher VAT or sales-tax rates on listed luxury goods, used in several countries outside the EU. EU member states cannot add a separate “luxury” VAT rate above the standard rate.

Ordinary sales tax, VAT, customs duty and wealth taxes also fall heavily on luxury assets but are not luxury taxes in this sense; they are covered under sales and use tax, VAT, customs and wealth taxes.

The 1990 US luxury excise tax

The Omnibus Budget Reconciliation Act of 1990 added a 10% federal excise tax, effective 1 January 1991, on the first retail sale of certain goods — charged only on the part of the price above a threshold:

The Omnibus Budget Reconciliation Act of 1993 repealed the tax on boats, aircraft, jewelry and furs (for sales after 1992) and kept only the tax on cars, with the $30,000 threshold indexed for inflation. The Small Business Job Protection Act of 1996 then phased the car tax down by one point a year — 9% (from late August 1996), 8% in 1997, 7% in 1998, 6% in 1999, 5% in 2000, 4% in 2001 and 3% in 2002 — and it expired for sales after 31 December 2002 (former 26 U.S.C. §4001).

Why the yacht tax is remembered as a failure

The boat portion became the standard example of a tax whose burden fell on the wrong people. Buyers of six-figure boats could simply wait, buy used (the tax applied only to first retail sales), or buy and keep a boat abroad; the demand for new boats was highly price-sensitive. US boatbuilders and yards reported steep sales declines and layoffs in 1991–92, which coincided with a recession, and the tax raised far less from boats than projected. Congress repealed the boat tax after two years. Economists still argue about how much of the downturn the tax caused and how much the recession did, but the episode is the usual reference point whenever a new luxury tax on yachts or aircraft is proposed.

Luxury taxes in force (as of October 2026)

Canada — Select Luxury Items Tax Act

Canada’s luxury tax took effect on 1 September 2022. For vehicles it is the lesser of 10% of the full taxable value or 20% of the value above the C$100,000 threshold. Boats over C$250,000 and aircraft over C$100,000 were originally covered too, but Budget 2025 removed them: the tax is no longer payable on subject aircraft and vessels from 5 November 2025, a change enacted by the Budget 2025 Implementation Act, No. 1 (S.C. 2026, c. 3, Royal Assent 26 March 2026). The tax on cars above C$100,000 continues.

Australia — Luxury Car Tax

Australia’s Luxury Car Tax is 33% of the GST-exclusive value above a threshold that is indexed every 1 July. For 2026–27 the thresholds published by the Australian Taxation Office are A$91,661 for fuel-efficient vehicles and A$80,809 for other cars (2025–26: A$91,387 and A$80,567). From 1 July 2025 a car must use no more than 3.5 litres per 100 km (previously 7 litres) to count as fuel-efficient.

United Kingdom — expensive car supplement

The UK has no separate luxury tax, but Vehicle Excise Duty includes an “expensive car supplement” of £440 a year (2026–27 rate) for cars with a list price above £40,000. It is paid for five years, from the second time the vehicle is taxed. Electric cars registered from 1 April 2025 pay it too, but from April 2026 the threshold for zero-emission cars is £50,000.

Italy — the superbollo and the 2011–2015 boat tax

Italy’s superbollo (an additional state charge on the annual car tax) is €20 for each kilowatt above 185 kW. It falls to 60% of that amount after five years from the year of manufacture, 30% after ten, 15% after fifteen, and is no longer due after twenty years (Agenzia delle Entrate).

Italy also tried a tax on pleasure boats in the 2011 “Salva Italia” decree (Decree-Law 201/2011, art. 16). It began as a daily mooring charge on boats over 10 metres in Italian waters; after protests from marinas and the boating industry that foreign yachts were leaving, it was recast in 2012 as an annual ownership tax that applied only to Italian residents, smaller boats were later taken out of it, and the remaining tax on boats over 14 metres was repealed from 1 January 2016 by the 2016 Stability Law (Law 208/2015, art. 1(366)). Searches for an “Italian luxury tax modified in response to industry concerns” are usually about this episode.

Luxury taxes and US states

No US state has a general luxury tax. What owners meet instead is sales and use tax (sometimes with caps on boats and aircraft, such as Florida’s $18,000 cap), annual personal-property tax on boats, aircraft or cars in some states, and “mansion taxes” on high-value real-estate transfers in a few places. Montana has no general sales tax, which is what has made Montana LLC registration of expensive cars and RVs popular. Its closest thing to a luxury tax is an extra annual registration fee: $825 for a light vehicle with an MSRP above $150,000 that is 10 years old or less, and $800 for a motor home with an MSRP above $300,000 (Mont. Code Ann. §61-3-321, 2025) — see Montana.

Reviewed October 2026