Washington Adopts New "Luxury Taxes" on Motor Vehicles, Watercraft, and Aircraft Beginning in 2026

Washington state has enacted sweeping new taxes on high-value vehicles, recreational watercraft, and noncommercial aircraft under Engrossed Substitute Senate Bill 5801 (ESSB 5801), signed into law in 2025. The bill creates a series of luxury levies that take effect in 2026 and operate in addition to Washington's existing sales, use, and excise tax regimes. These new taxes will significantly increase the cost of acquiring or leasing these high-value assets.

Statutory Framework

ESSB 5801 creates three new luxury taxes, each tied to a different part of Washington's excise tax laws. High-value motor vehicles fall under new sections added to RCW Chapter 82.08, the same chapter that governs Washington's retail sales tax. The tax on recreational watercraft is also housed in RCW Chapter 82.08 and parallels the scope of the existing watercraft excise tax found in RCW Chapter 82.49. For non-commercial aircraft, the Legislature created a separate set of rules in new RCW Chapter 82.48A, including a new section (RCW 82.48A.010) that imposes the luxury tax beginning in 2026.

Together, these statutes identify which assets are taxed, how value is measured, and what exemptions may apply. While the Department of Revenue is expected to issue additional guidance, the statutory language in ESSB 5801 provides the core rules that buyers, sellers, and advisors will rely on for transactions occurring in 2026 and beyond.

Motor Vehicles Valued Above $100,000

Beginning January 1, 2026, ESSB 5801 imposes an 8% luxury tax on the portion of a motor vehicle's fair market value (or sales price plus applicable trade-in value) that exceeds $100,000. This threshold increases annually beginning July 1, 2026, by 2%. The tax is incorporated directly into RCW Chapter 82.08, meaning it is administered alongside ordinary retail sales tax but applies only to high-value vehicles.

The tax applies based on the vehicle's fair market value at purchase or lease inception. Exemptions include commercial vehicles, vehicles over 10,000 pounds (with certain exceptions), farm vehicles, off-road and non-highway vehicles, and snowmobiles. The form of acquisition does not change the outcome: a lease of a vehicle valued above the threshold triggers the tax in the same manner as an outright purchase, even though the regular tax will continue to apply to rental payments, not the value at lease inception.

For example, if you purchase and register a motor vehicle in Seattle for $150,000, the new 8% luxury tax would apply to the $50,000 of value above the $100,000 threshold, resulting in an additional $4,000 of tax, and you would also owe Seattle's combined sales tax of approximately 10.3%, or about $15,525, along with the ongoing annual King County regional transit vehicle registration fee based on the vehicle's depreciated value.[1]

If the addition 8% tax is not paid at the time of purchase or lease inception (for example, if acquired by a resident out of state or brought into the state by a new resident when moving), a use tax applies at the same rate under RCW Chapter 82.12 upon the excess of the fair market value of the vehicle over the threshold value at the time of first use in Washington.

Recreational Watercraft Subject to Excise Tax

Effective July 1, 2026, ESSB 5801 creates a 0.5% additional tax on recreational watercraft subject to Washington's existing watercraft excise tax framework. This tax is codified through an amendment of RCW 82.08.020 and mirrors the scope of and exemptions from the registration and excise regime of RCW Chapter 82.49. Unlike the excise tax, this additional tax rate must be collected by retailers along with regular sales tax, except in lease situations where the lessor must collect this tax at lease inception.

The tax applies to the full purchase price of the vessel, even when a trade-in is involved, without a deduction for a threshold value in contrast to the new vehicle and aircraft taxes. For leases, the tax is calculated based on fair market value at lease inception. Exempt vessels include those not required to be registered, vessels under 16 feet, commercial fishing vessels, certain nonprofit-owned vessels, and dealer-held inventory not used for rental, all as provided in RCW 82.49.020.

Noncommercial Aircraft Exceeding $500,000

Beginning April 1, 2026, ESSB 5801 adds a 10% luxury tax for high-value private aircraft through newly enacted RCW 82.48A.010 and related provisions. The tax applies to the amount by which the aircraft's sale price or fair market value exceeds $500,000. The provisions apply only to non-commercial aircraft and exclude aircraft primarily used in interstate or foreign commerce, government-owned or government-exclusive aircraft, foreign-registered aircraft, and aircraft owned by nonresidents who qualify for exemption.

As with watercraft, trade-ins do not reduce the taxable portion of the transaction. For leased aircraft, the tax is assessed on fair market value at lease inception. If the tax is not paid upon purchase or lease inception, a use tax applies at the same rate under RCW 82.48A.020.

Implications for Buyers, Lessees, and Advisors

The new luxury-tax regime under ESSB 5801 carries significant implications for buyers, lessees, and advisors, who should reevaluate whether leasing, purchasing, or attempting to use trade-ins meaningfully reduces tax exposure and should also be mindful that out-of-state owners who base or temporarily use aircraft or vessels in Washington may face use-tax liability unless their presence is clearly transient or meets otherwise applicable exemption requirements. Moreover, dealers may or may not be completely informed of the applicable administrative procedures – another reason for buyers and lessees to be alert.

Washington's adoption of these taxes marks a major shift in the state's approach to high-value assets, and the resulting increase in transaction costs for luxury vehicles, recreational boats, and private aircraft beginning in 2026 makes proactive planning essential. Clients considering major acquisitions should assess whether the assets exceed the statutory thresholds under RCW 82.08, RCW 82.48A, and RCW 82.49 and determine whether adjusting the timing or structure of a transaction may mitigate exposure, while staying alert to forthcoming Department of Revenue rulemaking that may refine how these new taxes apply.

Matthew Widmyer and Dirk Giseburt leverage their experience in state and local taxation as well as deep knowledge of Washington's tax framework to help clients develop effective strategies to mitigate potential tax exposure. For more insights, reach out to the authors, visit Davis Wright Tremaine's Trust & Estates page, or sign up for our alerts.