Luxury Taxes Law and Legal Definition

A luxury tax is a levy on articles that are expensive, nonessential items. The luxury tax can make certain products and services more desirable—there is a prestige in owning an item that is considered a luxury. A downside to luxury taxes is that they can be too effective. When luxury taxes become too steep, people may choose to stop purchasing a particular product.

The recent federal luxury excise tax which was contained in the Omnibus Budget Reconciliation Act of 1990 was a controversial rax law. The controversy partly arose from ambiguities in the determination of tax liabilities for the automobile, boat, aircraft, jewelry, and fur industries. Due to consumer protest, in 1993, the luxury-taxable purchase price of a vehicle was raised to $32,000 and in 1996, it soared to $34,000. But accounting for inflation simply wasn't enough to appease consumers who resented what they deemed to be a "success penalty" in the first place. Although luxury-car buyers didn't go to the extremes that the yacht buyers did, they did fight back with their purchasing power.The continued dip in luxury-car sales, along with the support of organizations like the American International Automobile Dealers Association (AIADA), who lobbied for the repeal of the tax, led to President Clinton signing the Small Business Job Protection Act, sending the unpopular luxury tax on a seven-year phase-out plan.