Luxury tax

"For the special case of the term "luxury tax" applied to the salaries of athletes, see Luxury tax (sports)"A luxury tax is a tax on luxury goods -- products not considered essential. A luxury tax may be modeled after a sales tax or VAT, charged as a percentage on all items of particular classes, except that it mainly affects the wealthy because the wealthy are the most likely to buy luxuries such as expensive cars, jewelry, etc. It may also be applied only to purchases over a certain amount, for instance, some U.S. states charge luxury tax on real estate transactions over a limit.

A luxury good may be a Veblen good, which is a type of good for which demand increases as price increases. Therefore the effect of a luxury tax may be to increase demand for certain luxury goods.

Impact

When a luxury tax is imposed, typically there is little to no outcry from the majority of the population as most people are not in a position to be affected by the tax. Over time, what is viewed as "luxury" might change, resulting in more and more people being affected by the tax. Despite the animosity that ensues, the government may view the income from the luxury tax as essential and will not restrict or rescind it. So it may happen over time that goods considered "ordinary" might also incur luxury tax. An example of this can be seen with various commodities in the country of Norway, where at the beginning of last century, cars and chocolate were viewed as luxury goods. Thus, additional taxes were levied upon these goods. Today few Norwegians consider cars or chocolate a luxury, but the luxury taxes on these goods remain.

History

In the United States, many states used to collect state sales tax through the use of "luxury tax tokens" instead of calculating a percentage to be paid in cash like the modern-day practice. Tokens could be purchased from the state and then used at checkout instead of rendering the sales tax in cash. Presumably, the purpose of the practice was to remove the incentive for stores and businesses to avoid reporting income. Some tokens were copper or base metal while some were even plastic.

In popular culture

One of the squares on the Monopoly board (U.S. edition) is labeled "luxury tax". While there is a picture of a sparkling diamond ring on the square, the only effect is that the player must pay $75 to the Bank.

References

http://www.bankrate.com/

External links

* [http://www.encyclopedia.com/doc/1E1-luxuryta.html Columbia Encyclopedia entry on Luxury Tax]

Further reading


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • luxury tax — ➔ tax1 * * * luxury tax UK US noun [C or U] TAX ► a tax on expensive goods that are not necessary but are bought for pleasure: a luxury tax on sth »The government is considering imposing a luxury tax on jewellery …   Financial and business terms

  • luxury tax — lux·u·ry tax n: an excise levied on the purchase of items that are not essential for support or maintenance Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

  • Luxury Tax — A tax placed on products or services that are deemed to be unnecessary or non essential. This type of tax is an indirect tax in that the tax increases the price of the good or service and is only incurred by those who purchase or use the product …   Investment dictionary

  • luxury tax — a tax on certain goods or services not considered essential and usually relatively high in price. [1900 05] * * * luxury tax, a tax put on the sale, manufacture, purchase, or use of luxury goods and services …   Useful english dictionary

  • luxury tax — tax imposed on non essential goods and services …   English contemporary dictionary

  • luxury tax — a tax on certain goods or services not considered essential and usually relatively high in price. [1900 05] * * * Excise levy on goods or services considered to be luxuries rather than necessities (e.g., jewelry and perfume). Luxury taxes may be… …   Universalium

  • luxury tax — / lʌkʃəri tæks/ noun an extra tax levied on luxury goods …   Dictionary of banking and finance

  • luxury tax — noun Any tax on the sale of items not considered to be essential to a reasonable standard of living; either to increase revenue, or to discourage the use of certain articles …   Wiktionary

  • luxury tax — Fin a tax on goods or services that are considered nonessential …   The ultimate business dictionary

  • luxury tax — Generic term for excise imposed on purchase of items which are not necessaries; e.g. tax on liquor or cigarettes …   Black's law dictionary


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