Tax reform is the current hot topic in Washington, DC. However, the Trump administration has indicated that transportation infrastructure reform may be the next major issue to be addressed. Congress is taking yet another swing at repealing the expensive and complicated federal excise tax (FET) on heavy-duty highway vehicles.
Representative Doug LaMalfa of California introduced H.R. 2946 to repeal FET in the summer, and he recently sent a letter to each member of Congress asking for support.
Truck, trailer and equipment manufacturers and dealers, along with their customers, are all for doing away with the 12% charge and paperwork headaches. Similar legislation was introduced in 2010 and 2012, and more recent legislation has been aimed at simply making sure the tax doesn’t increase. (The tax has grown from 3%, when it was incorporated into the Highway Trust Fund in 1955, to 12% today.)
The legislation, “Heavy Truck, Tractor and Trailer Retail Federal Excise Tax Repeal Act of 2017”(H.R. 2946) by Rep. Doug LaMalfa’s (R.-CA) details the history and impact of the FET. First introduced in 1917 to help finance World War I, the current 12% FET is the highest percentage rate of any Federal ad valorem excise tax, and it “routinely” adds $12,000–$22,000 to the cost of a heavy truck, tractor, or trailer. This while a series of federal emissions regulations have added $39,183 to the average truck cost, meaning an additional $4,700 FET.
National Trailer Dealers Association President Gwendolyn Brown discussed the proposed FET repeal in August with Trailer/Body Builders editor Kevin Jones.
“Congress should consider a more reliable and consistent revenue mechanism to protect the Highway Trust Fund.” And, as Brown told Trailer/Body Builders, getting Congress to come up with a long-term fix for the Highway Trust Fund has been an uphill pull for the trucking industry for more than decade.
Along with the direct cost, Brown also points to the “problematic” application of the FET, which can allow a handful of less-reputable dealers to put dealers who are in compliance at a pricing disadvantage. And many of the FET rules are outdated, when it comes to assessing modern equipment — but it would be “a whole other ballgame” to address what should and shouldn’t be taxed. (To help with compliance, NTDA has established an FET hotline.)
“The Federal Excise Tax has long been an unfair method of taxing the truck and trailer industry. NTDA has supported open discussions and proposals to amend the law to make it fairer over the years, but efforts to make even minor changes to the FET law have met legislative roadblocks due to the enormous size of the tax revenue generated by FET,” Brown said. “Fair or unfair, the government is collecting a huge amount of money every year under the current tax and any changes that are not revenue neutral at worst have been shot down. The NTDA would support anything that would make the legislation fairer and either reduce or cap the amount of FET.”
The Highway Trust Fund provides the financing structure for federal investment in transportation projects. It consists of two accounts: the highway account, which supports projects for the interstate system and other roads, and the transit account, which supports light rail and other mass transit projects across the country.
Motor fuels taxes serve as the primary dedicated revenue source for the fund. These taxes — on gasoline and diesel — provide most of the fund’s revenue. FET is makes up a small portion of the Highway Trust Fund.
The trust fund finances about one-quarter of all public highway and mass transit spending across the country. Yet the fund continues to face. Legislation passed in early December increases spending on highway and transit projects and delays insolvency through 2020.
For several years there has been a gap between the trust fund’s revenue and spending, annual shortfalls that have been closed primarily with short-term measures. The bill signed into law in December covers those shortfalls only until 2020; afterwards they would return and start growing again, putting the trust fund on a short road towards insolvency.