Victory over FET?

Dec. 7, 2018
Trailer/Body Builders' monthly commentary

Amid the usual hustle and bustle that goes along with getting a magazine to the printer, the press release caught me by surprise: “As America celebrates the 100-year anniversary of the end of World War I, the American Truck Dealers (ATD) is calling on Congress to repeal the 101-year-old federal excise tax (FET) on heavy-duty trucks.”

I was surprised both because I hadn’t even realized Veterans Day was upon us, and I certainly hadn’t done the centennial math. It briefly occurred to me that using the occasion to complain about taxes might be considered inappropriate in some circles—but what could be more American than complaining about taxes? Especially about a tax that’s not only old, it’s complicated and prone to abuse. 

So let’s review, and explore alternatives.

Initially imposed in 1917, the FET was meant to be a temporary measure to help pay for The Great War. Although the tax was briefly repealed after the war ended, it was reinstituted and today is the highest percentage tax that Congress levies on a product, as ATD explains. The FET routinely adds between $12,000 and $22,000 to the cost of a new truck, and substantial premiums to trailers and many upfits as well.

“The FET is as outdated as biplanes and trench warfare,” says ATD Chairwoman Jodie Teuton, vice president of Kenworth of Louisiana and Hino of Baton Rouge, with a literary flourish. But she gets to the heart of the issue.

Gwendolyn Brown, president of the National Trailer Dealers Association, also regularly argues that FET rules are “outdated and confusing” when it comes to assessing modern equipment, but just as often she notes the political challenge of convincing Congress to drop such an established source of revenue. 

“The FET has long been an unfair method of taxation of the truck and trailer industry. The NTDA continues to support any proposal that would make the legislation more fair and either reduce or cap the amount of FET,” Brown said when I asked for her thoughts. “Unfortunately, complete repeal of the FET is unlikely without a stable means of replacement support for the Highway Trust Fund.”

Truck Trailer Manufacturers Association President Jeff Sims agrees. 

“This FET tax is difficult to manage, riddled with IRS interpretations that can be contradictory,” he said. “It precludes fleets from obtaining cleaner, lighter, safer equipment.”

Also problematic, FET fluctuates with transportation equipment market cycles—and everyone in the business knows those swings all too well. Adding insult to injury: The tax is tacked on to the cost of the expensive technology needed to meet government mandates, such as emissions control. Advanced safety systems also are costly. And trailer aero devices—not cheap. These all get taxed, too. So the industry is being penalized for being cleaner, safer, and more fuel efficient.

“To have a tax that literally discourages businesses from purchasing the newest available equipment hurts all involved—from the manufacturer, to the dealer, to the purchaser and ultimately the end user,” says Jake Jacoby, president and CEO of the Truck Renting and Leasing Association.

A pair of bills, H.R. 2946 and S. 3052, that would repeal FET have been introduced. ATD is urging Congress to revisit this tax and consider the repeal as part of a likely infrastructure bill coming next year. 

Indeed, restructuring the funding mechanism for highway spending offers “the best opportunity in years” to seek FET repeal, NTEA managing director Mike Kastner says. 

Inclusion of FET repeal language in an infrastructure bill is both timely and appropriate: The importance of improving the national infrastructure could well be the only thing a Democratic House and a Republican Senate can agree on, and President Trump campaigned on the issue. Additionally, support for a repeal is widespread in the transportation equipment industry. 

The only drawback: Even though the tax contributes just 5-8%, give or take, to the HTF, the revenue would need to be replaced, as NTDA’s Brown insists, if repeal is to be politically viable. Previous attempts in 2010 and 2012, with an attached offset tax on diesel, didn’t garner enough support. But ATD is building an industry coalition to consider other alternatives. The point now is to start the conversation on Capitol Hill.

In the meantime, manufacturers and dealers continue to struggle with the application of FET—at least based on the number of calls I get from folks looking for guidance (or to drop a dime on a competitor who might be exploiting a gray area). Suggestions? Complaints? Pass them along, and look for additional coverage from TBB.