Luxury motor vehicle tax

What is the luxury motor vehicle tax?

It is an 8% tax on the sale or lease of a new or used motor vehicle that exceeds $100,000. This tax is in addition to retail sales tax and motor vehicle sales/use tax.

How do I calculate the tax?

For purchases of motor vehicles, the taxable amount is the selling price plus trade-in property, minus the current deduction amount.

Example 1

In January 2026 a dealership lists a vehicle for $200,000. The customer has a trade-in valued at $50,000, making the selling price $150,000. The customer also purchases an extended warranty for $5,000. The luxury motor vehicle tax is calculated on $100,000 ($150,000 selling price + $50,000 trade-in - $100,000 deduction). The extended warranty is not considered part of the vehicle and is not subject to the luxury motor vehicle tax.

For leases of motor vehicles, the taxable amount is the fair market value of the vehicle at the inception of the lease minus the current deduction amount.

Example 2

In January 2026 a customer wants to lease a vehicle with a listed sales price of $200,000. As a condition of the sale, the customer adds window tinting and custom wheels for $5,000. The luxury motor vehicle tax is calculated on $105,000 ($200,000 list price + $5,000 accessories - $100,000 deduction). The window tinting and custom wheels are considered part of the vehicle because they are installed or attached to the vehicle as a condition of the sale and are subject to the luxury motor vehicle tax.

The deduction amount is increased by 2% on July 1^st of each year.

Why is the trade-in added to the selling price?

Selling price is defined by statute as the total amount of consideration, except for separately stated trade-in property of like kind. The trade-in must be added back in order to calculate the tax on the amount of the sale, lease, or transfer value that exceeds the allowable deduction amount.

For leased vehicles, what is considered fair market value?

Fair market value generally refers to the amount the vehicle would retail for, including delivery charges or any other services necessary to complete the sale.

Can I report the tax on a leased vehicle over the lease period?

No. On a leased vehicle the tax must be calculated and reported to the department at the beginning of the lease.

What is the deduction amount?

The deduction amount for Jan. 1, 2026, through Jun. 30, 2026, is $100,000 per vehicle.

This amount is increased by 2% on July 1^st of each year.

How do I report the tax?

Sellers will report the selling price before trade-in or the fair market value for leased vehicles on their combined excise tax return under the Sales/Lease of Luxury Vehicles classification and then take the Exempt Portion of Selling Price deduction (the $100,000 current deduction) for each vehicle sold that is subject to the luxury tax.

If the luxury motor vehicle tax is not collect by the seller at the time of purchase, the tax applies at the time the vehicle is registered with the Department of Licensing. For questions, please contact the Department of Licensing at 360-902-3770 or visit www.dol.wa.gov.

Are there any exemptions?

The luxury motor vehicle tax does not apply to the following:

• Commercial motor vehicles as defined in RCW 46.25.010.
• Motor vehicles with a gross of weight rating greater than 10,000 pounds other than motor homes, as defined in RCW 46.04.305.
• Farm tractors or farm vehicles as defined in RCW 46.04.180 and RCW 46.04.181, unless they are used in the production of cannabis. 
• Off-road vehicles as defined in RCW 46.04.365.
• Nonhighway vehicles as defined in RCW 46.09.310.
• Snowmobiles as defined in RCW 46.04.546.

What are the funds used for?

The funds are deposited into the multimodal transportation account to fund transportation improvements.