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What is the Gas Guzzler Tax?

by Dale Mayer
January 11, 2009

In 1978, the US Government created the Gas Guzzler Tax as part of the Energy Tax Act. It was intended to encourage the automobile industry to design vehicles that offered better fuel economy. This move recognized the fuel shortage problem and that some vehicles consumed far more fuel than others did.

The tax applies to any passenger vehicle that had a fuel economy level that didn't match the required standards. This tax does not apply to trucks, minivans, or sport utility vehicles (SUVs). At the time the tax was created, these types of vehicles were not widely used by consumers except for commercial purposes.

Any vehicle that had a fuel economy rating that was below 22.5 miles per gallon was considered taxable. This was based on a combined fuel economy rating of 55/45 percent of highway/city fuel estimates. These are different values than what the Environmental Protection Agency shows as being a vehicle's published value. Regardless, the tax is still in effect today.

The IRS is responsible for the administration of the program and the collection of the taxes, which are paid by the manufacturers (but almost always recouped from the buyer of the vehicle). The amount of any applicable tax that has been paid by the manufacturer (or importer) will be stated on the automobile's fuel economy label, which is the window sticker that can be found on new cars. Obviously, the lower the fuel economy, the higher the tax ends up being.

The tax itself can cost from $1,000 at the low end for a vehicle that is has a combined fuel economy rating that is between 21.5 mpg to 22.5 mpg. At the high end, the consumer can pay as much as $7,700 for a vehicle that has a combined fuel economy rating that is less than 12.5 mpg.

This tax was established to promote the manufacture and sale of fuel-efficient vehicles and therefore to discourage the production and sale of vehicles that had poor fuel economy. In a way, the plan backfired. The tax does not apply to any truck, minivan, or SUV, all of which have become incredibly popular with consumers and manufacturers. These vehicles were exempt to spare the farmers and construction businesses, which constituted about 25 percent of new vehicle sales when the tax was introduced. As these vehicles were exempt, manufacturers increased their production and rushed them to market under the banner of being passenger vehicles. Now these vehicles constitute approximately fifty percent of all new vehicles purchased.

In the last couple of years, this last year especially, the pickups, vans, and minivans have slowly started to improve in the fuel economy ratings. Manufacturers are even slowly pulling SUVs into line. However, these vehicles are still a long ways away from the fuel-efficient passenger vehicles.

The current list of 2009 vehicles that don't meet the fuel economy standards of today include over a hundred models with almost every manufacturer represented. You can get a complete list of models subject to the tax by visiting the EPA's Gas Guzzler Tax web site.


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