Washington State’s New Luxury Motor Vehicle Sales Tax
Client Alert – Effective January 1, 2026
Beginning January 1, 2026, Washington State imposes a new luxury motor vehicle sales tax on high-value vehicle purchases and leases. Enacted under Engrossed Substitute Senate Bill (ESSB) 5801, the tax applies in addition to existing state and local sales taxes and significantly increases the cost of acquiring certain vehicles.
Overview of the Tax
An additional 8% excise tax applies to the portion of a motor vehicle’s selling price or fair market value that exceeds $100,000. The tax applies to most non-commercial motor vehicles, whether purchased or leased, and is imposed on top of Washington’s regular sales tax and motor vehicle sales tax.
How the Tax Is Calculated
For purchases, the luxury tax applies to the selling price above $100,000. Trade-in vehicles do not reduce the portion subject to the luxury tax, even though they may reduce regular sales tax. For leases, the tax applies to the fair market value of the vehicle at lease inception to the extent it exceeds $100,000.
Example 1 – Vehicle Purchase
| Description | Amount |
| Purchase price | $150,000 |
| Luxury threshold | (100,000) |
| Amount subject to 8% luxury tax | $50,000 |
| Luxury tax (8%) | $4,000 |
Example 2 – Vehicle Lease
| Description | Amount |
| Fair market value at lease inception | $180,000 |
| Luxury threshold | (100,000) |
| Amount subject to 8% luxury tax | $80,000 |
| Luxury tax due at lease inception | $6,400 |
Exempt Vehicles
The luxury motor vehicle tax does not apply to commercial motor vehicles, vehicles over 10,000 pounds (excluding motor homes), farm vehicles (unless used in cannabis production), off-road vehicles, non-highway vehicles, or snowmobiles.
Planning Considerations
The tax applies to vehicles purchased out of state and registered in Washington, as well as to leased vehicles. Buyers should evaluate the full tax impact before completing a transaction, particularly for high-value vehicles where combined tax rates can be significant.
Conclusion
Washington’s new luxury motor vehicle sales tax represents a meaningful increase in acquisition costs for high-value vehicles. Clients considering these transactions should consult their tax advisor to understand compliance obligations and potential planning strategies.
This alert is provided for informational purposes only and does not constitute legal or tax advice.
