March 30, 2012 - Representative Jim Gerlach (R-PA) introduced HR 4321, legislation to repeal the retail sales excise tax on heavy trucks and replace the revenue with a small increase in the diesel fuel tax rate. The bill was cosponsored by Rep. Earl Blumenauer (D-OR). The bill has been referred to the House Ways and Means Committee, of which Rep. Gerlach is a member.
The NTEA applauds the introduction of this legislation as it would provide sales, infrastructure, and efficiency benefits.
The 12% federal excise tax (FET) is currently levied on the retail sale of some heavy truck and truck bodies, trailers and semitrailer bodies and chassis and truck tractors. The revenues collected from this excise tax are dedicated to the highway trust fund. The highway trust fund is dedicated to the construction and maintenance of federal highways and bridges. The primary revenue source for this fund is the fuel taxes.
A 12% retail sales tax serves as a disincentive to sales. As the economy and industry begin to recover, eliminating this disincentive will serve to strengthen the industry.
Fuel Tax More Equitable
Since the FET is levied on truck sales and the collected revenue is dedicated to highway funding it is basically a user fee. As a user fee, the FET is flawed. It does not equitably tax the users of the highways. The fuel tax more closely approximates user equity. The heavier the vehicle and the more distance it travels the more fuel it typically uses. The more fuel the truck uses, the more it pays into the highway trust fund.
Fuel Tax More Stable
The highway trust fund is shrinking. The FET serves as a very unstable source of revenue. FET revenues are completely driven by sales. When truck sales drop, the FET revenue being deposited to help pay for highway construction and maintenance drops in a corresponding manner. Fuel tax revenues are much more resistant to economic ups and downs. The fuel tax provides a significantly more stable source of revenue for federal budgeters.
The FET has always been a very complex tax for truck sellers to apply. Truck equipment distributors and dealers have consistently been faced with situations where the taxability of a truck, truck body or equipment was unclear. Eliminating this tax and shifting it to the existing diesel tax will improve the sales process for many companies.
In order to help work truck industry companies gain a better understanding of FET and how it is applied, the NTEA released the Federal Excise Tax Guide for the Work Truck Industry in 2011. This is the first and only publication that takes a comprehensive look at the 12% tax that applies to work trucks, tractors and trailers. Sections include information on the "Suitable for Use" standard; the Six-Month Rule; the 75% Rule; tax-free sales; and more.
The FET Guide is available at "Shop NTEA".
Any legislation affecting taxes will face significant challenges in an election year. Nonetheless, when looking at the declining state of our roads and the dwindling resources in the highway trust fund it is clear that a serious discussion must occur in Washington. Current highway funding is being authorized on a short-term basis while longer-term funding legislation is discussed. The elimination of the FET should be a serious part of the highway funding debate.