COULD it be that we inched a little closer to repealing the 12% federal excise tax on the sale of trailers and heavy-duty trucks?
Representatives Reid Ribble, a Republican from Wisconsin, and Tim Walz, a Minnesota Democrat, recently teamed up to introduce a resolution to keep the federal excise tax rate at 12%. But while advocating the status quo, the Congressmen also presented reasons why the tax should be repealed.
FET has perplexed our industry for decades. Is this vehicle taxable or not? Well, it depends. It depends on the GVW rating. It depends on who the customer is. It depends on when the first retail sale occurred. It depends on how much work is done on the vehicle. It depends on the value of any aftermarket accessories that may have been installed. It depends on whether the equipment was installed within six months after the first retail sale. It depends on whether you changed the function of the truck. It just depends.
“Depends?” an impatient college prof once shouted at a student. “Depends are what old people wear. I don’t want to hear ‘depends.’ I want an answer.” Many truck upfitters have felt the same way. Just tell me what I’m supposed to do. Don’t make me guess.
The ambiguity of the tax has been known to cost companies dearly. Charge it, and you may lose the sale to a competitor who sees the rules differently. Fail to charge it, and you can be on the hook for the customer’s taxes. Forget about who has the best product to sell. Who has the best CPA?
Repeal of the federal excise tax on certain trucks and trailers has been a pipe dream for those who make and sell them. Could that dream come true? Not anytime soon. But the industry can take comfort knowing that at least some Congressmen on both sides of the aisle recognize that FET is not good tax policy. The bipartisan resolution, proposed September 12, explains why:
• The 12% tax already is the highest of any federal ad valorem excise tax.
• The average manufacturer suggested retail price for heavy-duty trucks was over $158,000 last year. That translates into $18,960 added to the purchase price.
• Upcoming fuel economy regulations for heavy trucks are expected to tag on an additional $10,000-$15,000 to the price of a new heavy-duty truck. Truck buyers then will pay 12% more for the tax on that government mandate.
• The tax makes it more difficult for fleets to buy new heavy trucks that emit less pollution and burn less fuel.
• FET is an extra barrier for fleets to buy safer heavy-duty trucks with the latest safety technologies such as such lane departure warning systems, electronic stability control, and improved braking systems to meet the reduced stopping requirements for trucks.
• The volatile nature of truck and trailer sales means that revenue from the tax also will fluctuate significantly. A more stable source of revenue would be preferable.
These are all good reasons to repeal the tax. But here’s the rub: FET collections go to the Highway Trust Fund, and the fund is desperately low on cash. Eliminating the tax would require finding additional monies elsewhere.
Presently four types of taxes supply revenue for the Highway Trust Fund. In addition to federal excise tax on trucks and trailers, revenue sources for the Highway Trust Fund include fuel taxes (including gasoline, diesel, and biofuels), the tax on tires, and the heavy vehicle use tax. The default method for Congress to shore up the Highway Trust Fund would be to hike all of these taxes. But if the House resolution introduced September 12 is approved, trailers and heavy trucks would be protected from across-the-board rate hikes.
With a 2014 deadline looming to find ample monies for the Highway Trust Fund and an even more immediate need to fund government operations, tax reform will be at the forefront in both the House and Senate.
While no one expects FET to be repealed this year, the effort to hold the excise tax to 12% could help efforts to repeal the tax sometime in the future.
“There isn’t an official proposal yet to raise the FET,” says Mike Kastner, the National Truck Equipment Association’s Washington DC liaison. “The recent resolution is a defensive move, and it makes a good case for not raising the FET.”
But beyond that, Kastner says, it’s a good educational tool. The resolution does a good job of showing FET for what it is—a roadblock for putting safer, more fuel efficient trucks on America’s highways. ♦