Historically, there’s been a federal excise tax (FET) on heavy trucks and trailers. While it’s designed to support the highway transportation fund, recent observations have shown that the tax isn’t very useful.
It’s also negatively impacting the adoption of electric vehicles (EVs) for commercial purposes. This is one of the main reasons why the Senate recently introduced legislation to remove the tax.
Converting commercial trucks to electric will be a big step towards reducing emissions.
What are excise taxes?
Excise taxes are “taxes on consumption, levied on specific goods, services, and activities,” according to Tax Policy Center. You can either be taxed per unit (e.g., tax per gallon on gasoline) or a percentage of the price (e.g., airline ticket tax).
Generally, excise taxes are collected from producers or wholesalers and are embedded in the price paid by consumers. There are a few common categories of excise taxes imposed by the federal government, including alcohol, tobacco, and branded prescription drugs.
FET revenue has declined over time as the economy grows. In 1950, excise taxes accounted for 2.7% of gross domestic product (GDP). As of 2019, excise taxes are only about 0.4% of the GDP.
Why are officials trying to remove the FET?
The 12% FET on trucks is the highest percentage excise tax levied on any product economy-wide, effectively discouraging the investment in new, cleaner (and safer) trucks & trailers. @SenToddYoung and @SenatorCardin have introduced a bill to repeal it.https://t.co/NWsiT8QX17
Recently, the Senate introduced a bipartisan bill that would remove the federal excise tax on heavy trucks and trailers. One of the main reasons is because the intended purpose for the tax isn’t being fulfilled.
The FET is the highest percentage tax on any product, but it’s a small and unpredictable source of revenue, according to Transportation Today. This revenue is used for the Highway Trust Fund, which supports transportation-related projects and highway infrastructure across the U.S. Because of the low revenue, lawmakers have questioned the tax’s usefulness.
The Senators added that the FET discourages private companies from investing in cleaner and more modern truck fleets.
Since excise taxes can make EVs costly for fleet customers, they might be hesitant to switch to electric. In turn, manufacturers may also be less motivated to produce electric commercial trucks. According to the Senators, the 12% FET can add up to $22,000 to the cost of new heavy trucks, tractors, or trailers.
The excise tax may prevent companies from using new electric trucks even though they provide significant emissions reductions and improved fuel efficiency. Several groups in the trucking industry support the legislation to repeal the tax.
ATD Chairman Steve Bassett said, “On behalf of the trucking industry, we thank Sen. Young and Sen. Cardin for their bipartisan legislation to repeal the FET, which will result in cleaner, safer trucks on the road.”
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