Summary
As highlighted in our prior legal alert on Washington State's historic tax increases, the State enacted three luxury taxes aimed at aircraft, boats, and vehicles. This alert addresses all three taxes to help taxpayers plan their future transactions.
The Upshot
- Starting July 1, 2026, Washington implements a new 0.5% luxury tax on watercraft vessels, in addition to the state sales tax and the watercraft excise tax.
- Effective January 1, 2026, Washington will impose an 8% tax on certain "luxury" motor vehicle sales, in addition to the existing state sales tax.
- Beginning April 1, 2026, Washington will impose a 10% luxury tax on certain noncommercial aircraft sales, in addition to the various existing sales, use, and aircraft excise taxes.
The Bottom Line
These three luxury taxes are set to affect a range of Washington State taxpayers as they go into effect throughout 2026. If you or your clients have questions regarding the impact of these taxes, Ballard Spahr's Tax Group is here to help.
As highlighted in our prior legal alert on Washington State's historic tax increases, the State enacted three luxury taxes aimed at aircraft, boats, and vehicles. This alert addresses all three taxes to help taxpayers plan their future transactions.
Boats and Other Watercraft
Starting July 1, 2026, Washington implements a new 0.5% luxury tax on watercraft vessels, in addition to the state sales tax and the watercraft excise tax. The tax applies to "recreational vessels", meaning those vessels defined in RCW 88.02.310 that are also subject to the watercraft excise tax under Chapter 82.49 RCW. Under RCW 88.02.310, the definition of "vessel" is quite broad, including "every watercraft used or capable of being used as a means of transportation on the water, other than a seaplane." Beyond this broad definition, several types of vessels are exempt, including:
- Vessels exempt from the registration requirements of Chapter 8802 RCW.
- Vessels used exclusively for commercial fishing purposes.
- Vessels owned by certain nonprofit organizations.
- Vessels under 16 feet in overall length.
- Vessels owned and held for sale by a dealer, but not rented on a regular commercial basis.
For vessels subject to the new tax, the measure is the selling price. For example, if a taxpayer purchases a boat for $750,000 and trades in a boat with a fair market value of $300,000, the tax applies to the full $750,000 selling price. Furthermore, in the case of a lease requiring periodic payments, the tax is imposed on the fair market value of the recreational vessel at the time the lease begins. Presumably, this "periodic payment" requirement for leases would limit the tax to those recreational vessels that are leased for longer periods of time.
Motor Vehicles
Effective January 1, 2026, Washington will impose an 8% tax on certain "luxury" motor vehicle sales, in addition to the existing state sales tax. While this tax applies to all motor vehicles with a fair market value in excess of $100,000, the measure is the amount in excess of $100,000. Several exemptions apply, including:
- Commercial vehicles, such as school buses and vehicles transporting 16 or more individuals (RCW 46.25.010).
- Vehicles with a gross weight over 10,000 pounds, excluding motor homes (RCW 46.04.305).
- Farm tractors and vehicles (RCW 46.04.180 and RCW 46.04.181), unless used for cannabis production.
- Off-road vehicles (RCW 46.04.365).
- Nonhighway vehicles (RCW 46.09.310).
- Snowmobiles (RCW 46.04.546).
To illustrate the application, if a taxpayer purchases a vehicle for $130,000 and trades in a vehicle worth $25,000, the 8% tax applies to $30,000. For leased vehicles, the 8% tax applies if the fair market value of the vehicle surpasses $100,000 at the inception of the lease. The $100,000 threshold increases annually by 2% beginning each July 1, rounded to the nearest dollar. Notably, this tax also applies to vehicles brought into the state subject to the use tax under RCW 82.12.020.
Aircraft
Beginning April 1, 2026, Washington will impose a 10% luxury tax on certain noncommercial aircraft sales, in addition to the various existing sales, use, and aircraft excise taxes. This new luxury tax applies when the selling price for the purchased aircraft exceeds $500,000, or for leased aircraft where the fair market value of the aircraft surpasses $500,000 at the beginning of the lease. The tax only applies to the value of the aircraft exceeding $500,000, but in calculating that threshold, there is no reduction for the fair market value of any aircraft that is traded in.
The term "noncommercial aircraft" excludes aircraft defined under RCW 82.48.100, generally encompassing the following:
- Government-exclusive use.
- Foreign-registered aircraft.
- Nonresident-owned aircraft registered in other states.
- Aircraft primarily involved in interstate or foreign commerce.
- Commercial airplanes (RCW 82.32.550).
Like the application to motor vehicles, this 10% aircraft luxury tax also applies to aircraft brought into the state by residents when such in-state use is subject to the use tax under RCW 82.12.020. Unlike the annual adjustment for motor vehicles, the statute does not provide for an annual adjustment to the $500,000 value threshold.
Navigating the Luxury Taxes
Ballard Spahr LLP is helping our clients understand their exposure and how to navigate through these new taxes. If you or your clients have questions regarding the impact of these taxes, our Tax Group is here to help.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
