Luxury Tax

When we think of the term “luxury tax,” maybe we picture an extra sales tax attached to certain high-priced goods that are deemed non-essential, like vacation villas and ruby tiaras. Well, the part about the extra tax on goods deemed non-essential is correct, but we don’t have to necessarily be talking about super-expensive purchases for a luxury tax to apply.

For example, if we’re buying a new car and opt for the V10 instead of the V6 because...vroom vroom, we might end up paying a luxury tax on the bigger engine. Or, in certain states, we might pay a luxury tax when we buy certain types of alcohol. (Luxury taxes are sometimes referred to as “sin taxes,” since they’re often levied on things society deems unhelpful, like alcohol consumption.)

There’s some controversy around the whole concept of luxury taxes, as one might imagine. First of all, some question why the government should get to decide what’s essential and what isn’t. And second, our understanding of what is luxurious and what isn’t tends to change over time. Back in 2012, an iPhone 4 was pretty cutting-edge, but if we still have an iPhone 4 today, that’s not exactly a top-of-the-line smartphone anymore. So should iPhone 4s still be subject to a luxury tax? We don’t know, but we will say this: even if there is a luxury tax involved, we still wouldn’t mind getting our hands on one of those ruby tiaras.