What Is the Luxury Tax in Massachusetts?

Massachusetts does not have a single tax formally named a “luxury tax,” but the term is commonly used to describe two separate state taxes. The first is the application of the statewide sales tax to high-value goods, such as expensive cars, boats, and jewelry. The second is the Fair Share Amendment, an income tax surcharge levied on the state’s highest earners. This article explains the mechanics of both taxes.

Massachusetts Sales Tax on High-Value Goods

Massachusetts levies a statewide sales tax of 6.25% on the sale of most tangible personal property and certain services. This rate is uniform across the state, as local municipalities are not permitted to add their own sales taxes. When people refer to a “luxury tax” on goods, they are referencing this sales tax as it applies to expensive items, including motor vehicles, vessels, aircraft, and jewelry.

The application of the sales tax has specific rules for clothing. An exemption exists for any single item priced at $175 or less. If an article of clothing costs more than $175, the 6.25% tax is calculated only on the amount that exceeds the $175 threshold. For example, a $300 suit would be subject to sales tax on $125 of its price. This exemption does not apply to accessories or to apparel designed for athletic or protective use, which are fully taxable.

The state sales tax on restaurant meals is 6.25%, but Massachusetts law permits municipalities to add a local tax. In municipalities that have adopted this option, the total tax on a restaurant meal is 7%. This tax applies to food and beverages prepared for immediate consumption, whether eaten on-site or taken away, and is distinct from the tax exemption for most grocery food items.

Calculating Sales Tax on Vehicles and Vessels

The calculation of sales tax on motor vehicles and vessels involves determining the taxable sales price. For a purchase without a trade-in, the 6.25% sales tax is applied to the full purchase price of the vehicle. For instance, a vehicle purchased for $60,000 would incur a sales tax of $3,750.

When a buyer trades in an old vehicle as part of the transaction, Massachusetts law allows the value of the trade-in to be subtracted from the new vehicle’s purchase price before the sales tax is calculated. The tax is imposed only on the difference between the new vehicle’s sales price and the trade-in allowance. For example, if a buyer purchases a $60,000 vehicle and receives a $20,000 allowance for their trade-in, the sales tax is calculated on the $40,000 difference, resulting in a tax of $2,500.

In casual sales—transactions between private parties—the buyer is responsible for paying a 6.25% use tax directly to the state when registering the vehicle. The tax is calculated on the greater of either the actual sales price or the vehicle’s clean trade-in value as determined by official valuation guides. This provision ensures the state collects appropriate tax revenue.

The Fair Share Amendment Income Surtax

Separate from the sales tax is the Fair Share Amendment, an additional tax on high-income earners that went into effect on January 1, 2023. This is a 4% surtax levied on annual net income that exceeds a $1 million threshold, applying to individuals, trusts, and estates. The surtax is applied only to the portion of income above the threshold. For example, an individual with a taxable income of $1.2 million would pay the 4% surtax on $200,000 of that income.

This 4% surtax is applied in addition to the state’s regular income tax rate. The revenue generated from the Fair Share Amendment is constitutionally dedicated to funding public education and transportation initiatives. The $1 million income threshold is adjusted annually for inflation, meaning the threshold for paying the surtax is now higher than the original amount.

Remitting and Reporting Massachusetts Taxes

The procedures for paying the sales tax and the income surtax are distinct. For the 6.25% sales tax on goods purchased from a retailer, the vendor collects the tax from the buyer at the time of the transaction. The vendor is responsible for remitting these collected funds to the Massachusetts Department of Revenue by filing periodic sales tax returns.

For the 4% Fair Share Amendment surtax, the reporting burden lies with the individual taxpayer. This tax is calculated and paid as part of the annual Massachusetts personal income tax return. Residents use Form 1, while non-residents use Form 1-NR/PY to report their income and calculate the surtax. Taxpayers who anticipate owing the surtax are required to make quarterly estimated tax payments to avoid potential underpayment penalties.