On January 1, 1999 the luxury tax rate fell to six percent on new vehicles with a transaction price in excess of $36,000, according to the American International Automobile Dealers Association (AIADA).
This drop is part of the luxury tax phase out signed into law on August 20, 1996 after six years of intense lobbying by AIADA. The tax rate will continue to drop one percent a year until it expires on January 1, 2003.
AIADA received word from the IRS on December 15, 1998 confirming that the threshold would remain at $36,000 in 1999. The official announcement appeared in the IRS Bulletin 1998-52 dated December 28, 1998; also available via the IRS website: www.irs.ustreas.gov. An increase in the luxury tax threshold is determined by the rate of inflation for the year, which the IRS bases on the final Consumer Price Index (CPI).
Calculating the Luxury Tax Example For Sales On And After 1/1/99
- Transaction price: $42,000
Tax Rate: 6%
Tax Threshold: $36,000
$42,000 - $36,000 = $6,000
$6,000 is the taxable amount
$6,000 x 6% = $360
$360 is owed for the luxury tax
Trucks, vans and sport-utilities with a loaded gross vehicle weight over 6,000 lbs. are exempt. The luxury tax applies to new vehicle transactions only. Automobile dealers with questions regarding the luxury tax can call AIADA's government relations office at (703) 519-7800 for a complete list of exemptions, information on the effects of trade-ins and leasing, and detailed instructions on calculating the luxury tax.
