FET repeal opportunity

By Mike Kastner, NTEA Managing Director

This article was published in the December 2017 edition of NTEA News.

Congress and the Trump Administration indicated transportation infrastructure reform will be the next major issue to address after tax reform. Repeal of the Federal Excise Tax (FET) on the sale of heavy-duty trucks and truck bodies is relevant to both conversations, and NTEA is working on the industry’s behalf to educate Congress on the value of repeal.

Funds collected from this tax are used to support the Highway Trust Fund — road and bridge building and maintenance. Primary revenue sources for this fund are gasoline and diesel fuel taxes, which were last increased in 1993. Between inflation and increased vehicle fuel efficiency, the buying power of the Trust Fund is ever decreasing — necessitating restructuring.

FET is a small percentage (4.5–8.5 percent) of the Trust Fund and is an unstable source as it’s directly tied to retail truck sales. Restructuring the funding mechanism for highway spending offers the best opportunity in years to seek FET repeal.

The tax does not do a good job as a highway funding mechanism, is complex to administer and stunts the sale of primarily domestically produced goods. One hundred years ago, the precursor to today’s FET was instituted to help pay for World War I. It’s time to close the books on
this tax.

Repeal legislation
Representative Doug LaMalfa of California introduced H.R. 2946 to repeal FET. Since its release this summer, it has garnered 14 cosponsors. At the end of October, Rep. LaMalfa sent a letter to each member of Congress asking for support. His letter included NTEA’s logo as a supporter of the bill.           

In the letter and legislation, Rep. LaMalfa points out FET significantly increases the cost (by 12 percent) of new heavy-duty trucks, truck bodies and trailers, which discourages replacement of older and less fuel-efficient vehicles. These aging trucks are less environmentally friendly and lack the most recent safety advancements.

As Environmental Protection Agency’s new greenhouse gas rules take effect, heavy-duty trucks will become even more expensive. The 2002–2010 diesel emission rules added some $20,000 to the price of a heavy-duty truck. The Phase 1 rules of 2014–2018 add another $6,000 to $7,000, and the upcoming Phase 2 rules for 2021–2027 could add another $12,500 in emission compliance. All of these additional costs are taxed at 12 percent for FET purposes.

H.R. 2946 repeals FET and needs to be part of the tax and infrastructure reform conversations.

IRS regulations
While much of NTEA’s current focus is on Congressional repeal opportunities, we continue to address the current state of FET. Internal Revenue Service (IRS) still has outstanding a proposal that could make FET even worse if it is not repealed.           

In March 2016, IRS proposed making certain “temporary” regulations permanent. Those in question are around 30 years old, and the proposal goes well beyond simply making them permanent.

None of the affected taxpayer community was consulted in the development of this proposed rule. When NTEA testified at a public hearing on the rulemaking, every witness opposed the rule — not one testified in support of any portion.

The most troubling of the proposals is the elimination of what are known as “blanket” exemption certificates.

As FET is applied to the first retail sale of a vehicle, transfers prior to that sale are theoretically exempt from the tax — the simplest case being the transfer of a truck from an OEM to its dealer. To demonstrate this exemption, a certificate stating the transfer is for resale is provided. Today, a blanket certificate encompassing all transfers from a single entity to another can be issued to cover 12 calendar quarters.

IRS proposed requiring a resale exemption certificate for each transfer. One truck OEM indicated it has 67 certificates to cover truck sales to dealers for resale. Under the IRS proposal, this number would grow from 67 to 114,000 certificates to cover the same period — with no enforcement benefit.

Of concern to truck body manufacturers, IRS is proposing body identification numbers on the exemption certificate — similar to vehicle identification numbers. Today, no such federal requirement or numbering system exists for truck bodies. Creation and implementation of it would be a massive and expensive task, again creating no enforcement value.

In addition to testifying against the IRS proposal, NTEA was in contact with the new Administration during its transition to make our concerns known. While no action has been forthcoming from IRS on this issue, we continue to reach out to the Department of the Treasury and the White House Office of Management and Budget to stop this proposal.