Serves the Commercial Small Fleet Market of 10 – 50 Vehicles

Luxury Tax on Cars Comes to an End

January 2, 2003

For shoppers still in the market for a fancy car, the holidays just got a little brighter -- the federal luxury tax on automobiles went out with the old year.The tax, enacted in 1990 as part of a package of taxes on "envy items," including boats, furs, jewelry and airplanes, has long been a thorn in the side of high-end car dealers, according to the Washington Post. "The burden of the tax was really falling on small-business dealers as well as the consumer,"said David Regan, executive director of legislative affairs at the National Automobile Dealers Association (NADA). "It wasn't good tax policy."The industry persuaded Congress in 1996 to end the tax. Because of concerns about lost revenue, it was phased out, with the tax lowered as the threshold for its application was raised to $40,000. Last year the tax applied to about 700,000 vehicle sales, according to the dealers association.Regan and other auto industry experts said the end of the tax couldn't have come at a better time for the industry and the economy, which continues to sputter. "This year's 3 percent would add $1,200 to the cost of many high-end luxury cars" and sport utility vehicles, said Paul Taylor, chief economist for NADA. "That amount coming off the transaction price in 2003 provides an impact of nearly the same magnitude as a $1,200 cash rebate. Just as cash rebates and other incentives helped luxury-car sales in 2002, the repeal of the luxury tax should help boost sales in 2003," Taylor said.
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