Tax Policy and Administration:

Luxury Excise Tax Issues and Estimated Effects

GGD-92-9: Published: Feb 26, 1992. Publicly Released: Apr 1, 1992.

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Pursuant to a congressional request, GAO provided information on the effect of the luxury excise tax on the luxury boat, car, aircraft, jewelry, and fur markets, focusing on the: (1) anticipated tax revenue; (2) Internal Revenue Service's (IRS) actual collections; and (3) costs and issues associated with administering the tax.

GAO found that: (1) it did not find any data on any of the five products affected by the tax, with the exception of cars, that were adequate to use in reliably estimating the effect the luxury tax may have had on sales of the taxed products; (2) attempts to measure the impact of the tax by comparing sales before and after the tax was imposed must control for such other factors as the 1990-1991 recession, which likely decreased sales of all five products; (3) it was very likely that the tax alone was not responsible for the sales decline in 1991, since luxury car sales were affected by an increase in the gas guzzler tax, and airplane sales decreased due to product liability costs; (4) the products Congress selected as luxuries and the threshold levels that it established reflected subjective decisions about which products were luxuries; (5) IRS collected about $168 million in luxury excise taxes during fiscal year (FY) 1991, 90 percent of which was from luxury car sales; (6) initial IRS information indicates that taxpayers are informed about the luxury excise tax and are complying with it; (7) IRS does not have an estimate of the cost to taxpayers to comply with the luxury excise tax; and (8) ensuring compliance with the proposed luxury excise tax regulations could vary, depending on factors such as the number of firms and transactions involved and the level of complexity in applying the rules.