On Jan. 1, 2002 the luxury tax rate will fall to three percent on new vehicles with a transaction price in excess of $40,000, according to the American International Automobile Dealers Association (AIADA). The auto luxury tax is scheduled to expire at the end of 2002. The tax has phased down one percent a year since it was signed into law in 1996 after six years of intense lobbying by AIADA.

"It is fundamentally unfair to continue to charge the American public a 'luxury tax' for the purchase of a $41,000 car, minivan or sport utility vehicle when similar taxes on million dollar yachts were eliminated nearly a decade ago," said AIADA President Walter E. Huizenga. "America's automobile dealers and their customers look forward to the much-awaited demise of this inequitable tax."

The association says it received word from the IRS on Dec. 7 confirming that the threshold will rise to $40,000 in 2002. The official announcement will appear in IRS Bulletin (IRB 2001-52) to be issued on Dec. 24, 2001. 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 1/1/02

Transaction price - $47,000

Tax Rate - 3%

Tax Threshold - $40,000

$47,000 - $40,000 = $7,000

$7,000 is the taxable amount

$7,000 x 3% = $210

$210 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.

About AIADA

AIADA is the lobbying and communications force in Washington, D.C. for the 10,000 American automobile dealerships that sell and service international nameplate brands Acura, Audi, BMW, Daewoo, Ferrari, Honda, Hyundai, Infiniti, Isuzu, Jaguar, Kia, Land Rover, Lexus, Maserati, Mazda, Mercedes, Mitsubishi, Nissan, Porsche, Rolls Royce, Saab, Subaru, Suzuki, Toyota, Volkswagen and Volvo.

According to AIADA, the competitive market fueled by the international automobile has produced safer, more fuel-efficient vehicles with greater quality, value and a multitude of features that benefit the American consumer. As a result, U.S. consumers enjoy the freedom to choose from among a wide array of vehicles to meet their transportation needs, according to AIADA.

AIADA's Web site is at www.aiada.org.