California does not have a tax officially named a luxury tax, but several state and local taxes work like one by scaling directly with the price of what you buy, own, or earn. A mansion tax in Los Angeles, property reassessment at the sale price, sales and use tax above 10% in many areas, a vehicle registration fee tied to market value, annual property tax on boats and aircraft, and the country’s highest income tax rate all combine to make high-end transactions in California significantly more expensive than in most other states.
Mansion Taxes on High-Value Real Estate
The closest thing to a named luxury tax in California is the tiered real estate transfer tax that some cities have adopted. Los Angeles voters passed Measure ULA in 2022, commonly called the mansion tax. For transactions closing after June 30, 2025, a sale between $5,300,000 and $10,600,000 carries a 4% transfer tax, and a sale at $10,600,000 or above carries 5.5%.1City of Los Angeles Office of Finance. Real Property Transfer Tax and Measure ULA FAQ On a $12 million sale, the 5.5% rate alone produces a $660,000 tax bill.
Los Angeles is not the only California city with a tiered local transfer tax, and these local charges sit on top of the statewide documentary transfer tax of $1.10 per $1,000 of value. The state portion is small. The city portion in a mansion-tax jurisdiction can be the largest single line item at closing.
Property Tax Reassessment When You Buy
Proposition 13 caps the annual property tax rate at 1% of assessed value plus voter-approved bond charges, and limits yearly increases in assessed value to 2% or inflation, whichever is lower, as long as the property doesn’t change hands.2California State Board of Equalization. California Property Tax – An Overview3Legislative Analyst’s Office. Common Claims About Proposition 13 The protection is powerful for longtime owners and worthless to new buyers of expensive property.
When a home changes hands, the county reassesses it at the full sale price and sets that as the new base year value.2California State Board of Equalization. California Property Tax – An Overview Buy an $8 million home and the base property tax starts at roughly $80,000 a year. A neighbor in an identical house purchased decades earlier may pay a small fraction of that. Every luxury purchase resets the clock to current market value.
Sales and Use Tax on Big-Ticket Purchases
California’s sales tax is a flat percentage, but at these rates the dollars add up quickly on expensive items. The statewide base is 7.25%, and local district taxes push the combined rate above 10% in many areas, reaching 11.25% in some cities.4California Department of Tax and Fee Administration. California Sales and Use Tax Rates by County and City A $100,000 piece of jewelry at a 10% combined rate costs $10,000 in tax. A $250,000 custom boat purchase at the same rate costs $25,000.
The same rate applies as a use tax when you buy expensive goods out of state and bring them into California. Fine art bought at a New York auction, custom furniture ordered from overseas, and similar out-of-state purchases are all subject to use tax at your local rate once stored or used in the state.5California Department of Tax and Fee Administration. California City and County Sales and Use Tax Rate Information The use tax is designed to stop residents from avoiding sales tax by shopping across state lines.
Annual Vehicle License Fee
California charges every registered vehicle an annual Vehicle License Fee of 0.65% of market value.6California Department of Motor Vehicles. Vehicle Industry Registration Procedures Manual – Vehicle License Fee On a $30,000 sedan, that’s about $195 a year. On a $300,000 luxury car it’s $1,950, and on a $500,000 exotic it’s $3,250 every year just to keep the registration current. The fee continues for as long as you own the vehicle, with the assessed value depreciating over time, and it is separate from the sales tax paid at purchase.
A flat registration fee would charge every driver the same amount. The percentage-of-value approach guarantees that expensive vehicles generate proportionally higher revenue year after year.7California Department of Motor Vehicles. Registration Fees
Out-of-State Vehicles, Boats, and Aircraft
California presumes that any vehicle, vessel, or aircraft bought outside the state and brought in within 12 months was purchased for use in California and owes use tax.8California Department of Tax and Fee Administration. California Revenue and Taxation Code 6248 – Presumption of Purchase for Use; Vehicles, Vessels, and Aircraft The presumption applies if the buyer is a California resident, if the vehicle is registered in California during the first year, or if it spends more than half of its first year in the state. The rule is a direct response to the strategy of buying a $400,000 car in a no-sales-tax state and driving it home to Los Angeles.
Enforcement is aggressive. State agencies have targeted the so-called Montana loophole, where California residents register luxury vehicles through out-of-state LLCs to avoid California sales tax. Buyers caught using the scheme face the full tax, a penalty of up to 50% of the tax owed on the purchase price, back registration fees, and potential criminal charges.9California Department of Tax and Fee Administration. CDTFA and DMV Are Cracking Down on Auto Dealers Who Help Buyers Evade California Taxes On a $500,000 vehicle, that penalty alone could exceed $18,000 on top of the original tax.
Annual Property Tax on Boats and Aircraft
High-value cars are not the only assets that face ongoing taxation after purchase. Boats, yachts, and aircraft kept in California are subject to an annual unsecured property tax assessed by the county where they are located. County assessors value these items at fair market value each January 1 and apply a rate that typically runs around 1% plus any voter-approved additions, matching the general real estate rate structure under Proposition 13.
A $2 million yacht generates roughly $20,000 or more a year in property tax, on top of whatever sales or use tax was paid at purchase. The tax continues annually as long as the vessel or aircraft is kept in California, with the assessed value adjusting each year for depreciation or market changes.
Top Income and Capital Gains Rates
California’s income tax is the steepest in the country, and the top rates function as a luxury tax on high earnings. The highest statutory marginal rate is 12.3%, which for 2025 applies to taxable income above $742,953 for single filers and above $1,485,906 for married couples filing jointly.10California Franchise Tax Board. 2025 California Tax Rate Schedules The Mental Health Services Act adds a 1% surcharge on all taxable income above $1 million, bringing the effective top marginal rate to 13.3%.
The piece that catches most sellers of luxury assets off guard: California taxes capital gains as ordinary income. There is no reduced rate for long-term gains like there is at the federal level. Sell a piece of fine art you’ve held for 20 years and realize a $3 million gain, and the whole gain is added to your taxable income for the year and taxed at whatever marginal bracket it falls into. For sellers of luxury collectibles, vintage cars, or investment real estate at a significant profit, that typically means a 12.3% or 13.3% state tax on the gain, on top of federal.10California Franchise Tax Board. 2025 California Tax Rate Schedules There is no shelter in California’s structure for investment gains on luxury assets.
Proposed Wealth Taxes Are Not Law
California does not impose a tax on net worth. Lawmakers and advocacy groups have introduced proposals that would. Assembly Bill 259 in 2023 proposed a 1% annual tax on worldwide net worth above $50 million and a 0.4% exit tax on net worth above $30 million for residents leaving the state; it died in committee in early 2024. A separate ballot initiative cleared for signature gathering would impose a one-time 5% excise tax on the net worth of California residents with $1 billion or more. None of these proposals is currently law, so planning should rely on the taxes that actually apply today rather than ones that may never pass.