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Luxury tax is the tax levied on luxury commodities. Such products are not considered as basic necessities. Luxury tax is commonly levied as Value Added Tax (VAT). The other forms of application are charging it as part of sales tax or as a percentage of a products retail price.
In the U.S luxury tax is even applied to real estate purchases if they cross a certain limit. Which means the farther a product goes from being a basic necessity for the major part of the population, the more it becomes a luxury.
A commodity is classified as a luxury good based on demand-supply imbalance as well. So it would not be surprising if in the future if even certain types of vegetables are classified as a luxury commodity! Although the chances are low for such a thing to happen.
When the price of good increases, it is evident that is either in high demand, or in short supply. Typically, a high demand outweighs short-supplies as a factor to be included when classifying a good as a luxury item.The U.S government would impose luxury car tax before. It does not do so now. From 1990 to 2002, the U.S government collected luxury taxes from car manufacturers for certain expensive cars.
In 1990, all vehicles costing more than thirty thousand dollars were bracketed into the luxury item category. But not all vehicles were targeted. Only car were.
What was a luxury before might not be now. As the world progresses, technology increases, and some luxury goods of yore cease to be a luxury item.
