A way to raise state revenue, luxury taxes can be put on everything from designer clothes to real estate transactions.
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Luxury taxes, the mercurial fines that are tacked onto extravagant items like fancy cars and expensive jewelry, are a way to force those who can afford to buy these big-ticket items to contribute to society.
This form of taxation is placed on products that are not considered essential and is aimed at making the wealthy pay more for their lavish spending habits. A way to raise state revenue, luxury taxes can be put on everything from designer clothes to real estate transactions. Luxury taxes are rarely national; they vary from state to state.
"In the United States, the only mass luxury tax was the tax on automobiles costing more than 40,000 dollars, and that expired in 2002," said Paul Zane Pilzer, economist and author of "The Next Millionaires." "It didn't apply to trucks or SUVs and was a nuisance."
Other luxury taxes have met a similar end. For example, when drafting the 2009-2010 state budget, New York state legislators wanted to include an additional 5 percent luxury tax on jewelry , watches and furs that cost more than $20,000. The proposed luxury tax would have also been applied to aircraft costing more than $500,000, yachts costing more than $200,000 and cars costing more than $60,000. However, this luxury tax was struck down.
Often adjusted based on the state of the economy and inflation, luxury taxes are not to be confused with sin taxes, which are applied by the government as a way to discourage the use of products and services that could pose a risk to someone's health, such as alcohol and cigarettes. In the United States, Puritan colonists created the earliest sin taxes, according to the IRS.
"Sin taxes are designed to modify human behavior and/or tax people for the cost to society of their 'sin,' like smoking, drinking, or polluting." Pilzer told Life's Little Mysteries. "Sin taxes are generally very effective in fairly charging people for their bad behavior, but have had little success in actually modifying behavior."
Both sin and luxury taxes have been around for hundreds of years, and throughout history, there have been some pretty bizarre ones:
- Currently, Alabama has a tax tacked onto the price of a deck of cards 10 cents for a deck containing no more than 54 cards. The state also taxes stores for selling the cards with an annual license tax of $3 and a fee of $1, according to the Alabama Department of Revenue.
- In September 2009, Illinois decided to tax candy at a higher rate than other food. Similarly, Gov. David A. Paterson (NY) proposed tax on sugary sodas this year, which would have added a penny-an-ounce tax on soda and other sweet drinks. The proposed tax was dropped from the state revenue bill.
- In 2005, the Canadian Parliament proposed bills that aimed to put an excise tax, of which sin taxes are considered to be one form, on prostitution.
- Winners of the Nobel and Pulitzer Prizes must pay a special tax to the IRS. "If you were awarded a prize in recognition of accomplishments in religious, charitable, scientific, artistic, educational, literary, or civic fields, you generally must include the value of the prize in your income," according to the IRS.
- Peter the Great, Tsar of Russia during the late 17th and early 18th centuries, hated beards so much that he required all men except peasants and priests to pay him a yearly tax for sporting a beard. Those who paid the tax were also forced to wear a medal proclaiming, "Beards are a ridiculous ornament," according to Diane Stanley's "Peter the Great," (Macmillan Publishing Company, 1986).
- In the 14th century, England taxed its citizens for simply being alive. This tax was increased to triple its original amount, until the people finally protested the outrageous tax during what it now known as the Peasants' Revolt of 1381.
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