Federal Excise Tax Still Alive and Well

Despite bipartisan support, efforts to repeal or reduce the 12% excise tax on most new trucks and trailers fell short in the final tax bill. The tax was first imposed at a rate of 3% in 1917 to fund World War I. Years past the end of the war, the tax continued to be increased and levied against equipment purchases. It was set at its current rate in 1983.

An amendment introduced in late June would have reduced the tax to 2% rather than repeal it altogether. The amendment didn’t make it into the final bill. Now its sponsor says he plans to introduce the 2% provision in future legislation.

The tax can exceed $20,000 for new trucks and extend beyond $52,000 for a zero-emission truck. Regardless of the equipment purchased, vehicle costs have skyrocketed in recent years and new tariffs are expected to result in even higher costs. And even though the tax is levied only on new equipment purchases, anything that raises the cost of new trucks and trailers trickles down to raise the cost of used equipment, already at historic highs.

Monies raised by the tax go into the Highway Trust Fund to pay for new highways and related infrastructure projects. A downside of repeal or reduction in the tax would be replacing the funding it provides for highway projects. As an example, raising the federal diesel tax by 11.2 cents per gallon would offset the cost of a full repeal.