Gas Guzzler Tax Definition

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Gas Guzzler Tax Definition

What Is the Gas Guzzler Tax?

The gas guzzler tax is a premium imposed to the purchase or lease price of vehicles in the United States with low fuel efficiency ratings. The tax, which is paid by the vehicle’s manufacturer or importer, fluctuates based on the vehicle’s miles per gallon efficiency and ranges from $1,000 to $7,700.

The gas guzzler tax applies only to passenger cars and does not apply to trucks, SUVs, or minivans. This is due to the fact that the rule was enacted in 1978, when such types were seldom utilized as passenger cars.

The gas guzzler tax provision was introduced by Congress in the Energy Tax Act of 1978 to discourage the development and purchase of fuel-inefficient cars.

Key Takeaways

  • Passenger automobiles that do not satisfy minimum federal fuel economy criteria are subject to a gas guzzler charge.
  • Manufacturers and importers of petrol guzzlers must pay the fee.
  • SUVs, minivans, and trucks are exempt from the levy.
  • The Energy Tax Act of 1978 established the gas guzzler tax.

How Does the Gas Guzzler Tax Work?

A automobile must obtain at least 22.5 miles per gallon (mpg) in combined city and highway driving to avoid the gas guzzler tax.

The amount of tax owing is determined on how much petrol the automobile consumes. That is, the greater the tax, the poorer the fuel efficiency. Those that get less than 22.5 mpg pay $1,000 in taxes, while cars that earn fewer than 12.5 mpg pay $7,000 at the top of the spectrum. Internal Revenue Service (IRS) Form 6197 is used to report the tax. It is reported after the manufacturing year has ended and the overall number of cars produced is known.

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If the automobile is liable to the gas guzzler tax, the amount of the tax will be shown on the window sticker.

Which Cars Are Subject to Gas Guzzler Tax?

Up until 2016, the EPA issued a list of new automobile models that were subject to the gas guzzler tax. It hasn’t released one since, but the 2016 list of gas guzzlers provides an idea of the kind of vehicles subject to the levy.

The majority are high-end luxury and sports automobiles, such as Aston Martin, BMW, Ferrari, and Rolls-Royce models. There were a few American muscle vehicles on the list as well, including a Chevrolet Corvette and a Ford Mustang iteration.

How Fuel Efficiency Is Tested

Anyone interested in the fuel economy of any car sold in the United States may consult the Fuel Economy Guide, which has been issued by the United States government since 1984.

When measuring vehicle fuel economy for the gas guzzler tax and new car fuel efficiency labeling, manufacturers are obligated to employ the same test as the EPA. The computation methodologies, however, vary. According to the EPA, an adjustment factor is applied to the fuel efficiency test results for label reasons but not for tax purposes.

The change is intended to account for the variations between real-world driving and laboratory testing situations. This disparity is known as in-use deficit. The mpg figures published in the Fuel Economy Guide and presented on fuel efficiency labels are based on three tests in addition to the regular fuel-economy test to compute the deficit.

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The combined city and highway fuel economy used to calculate tax obligation is not modified to account for in-use deficit, therefore it is greater than the mpg estimates supplied in the Fuel Economy Guide and shown on new car window stickers.

Problems With the Gas Guzzler Tax

When the gas guzzler tax was implemented in 1978, gas prices had risen 75% in six years. Meanwhile, oil output in the United States peaked in 1970 and fell progressively throughout the decade as consumption climbed.

The 1973 OPEC oil embargo caused significant hardship for consumers in the United States and throughout the world. Gas shortages and increasing costs made the decade renowned.

This is the context in which the gas tax was enacted. Its goal was to encourage more fuel-conscious purchasing by consumers and increased fuel efficiency by manufacturers.

Vehicles that are Exempt from the Gas-Guzzler Tax

Jeep debuted the Cherokee XJ in 1984, which is generally regarded as the first sport utility vehicle (SUV).The SUV did not exist when the gas guzzler tax was enacted, but it quickly became the most popular kind of vehicle sold in the United States during the following 30 years.

Trucks and SUVs continued to outsell automobiles among American consumers in 2019. Nonseasonally adjusted passenger vehicle sales in the United States fell 10.9% in 2019 to 4.7 million units, down from 5.3 million units in 2018. According to S&P Global Market Intelligence, sales of trucks, minivans, and SUVs were 12.2 million units in 2018, up 2.8% from 11.9 million units in 2018.

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Automakers were eager to exploit a gap in the gas guzzler tax and its interpretation by regulatory bodies such as the EPA, which exempted “light-duty trucks” from the statute. As a result, the amount of gas guzzler tax collected by the United States in fiscal year 2019 was less than $43 million.

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