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NADA forecast: End of luxury tax should spur auto sales in 2003

November 23, 2010
The elimination of the federal luxury tax on automobiles on Dec. 31, 2002, likely will save consumers more than $200 million a year and should increase demand for those vehicles that sell for more than $40,000, according to an NADA news release. Paul Taylor, chief economist for the NADA, said 2002's 3 percent tax rate applied to selling prices over $40,000- the final thresholds in a six-year phaseout of the tax-added $1,200 to the cost of many high-end luxury cars and SUVs. "That amount coming off the transaction price in 2003 provides an impact of nearly the same magnitude as a $1,200 cash rebate," Taylor said. "Just as cash rebates and other incentives helped luxury car sales in 2002, the repeal of the luxury tax should help boost sales in 2003," he said. An estimated 700,000 vehicles purchased in 2002 were subject to the luxury tax. The tax generated more than $4 billion since its inception in 1991.