Lawmakers Attempt To Scrap Large Truck FET

Earlier this summer, California Republican Doug LaMalfa introduced a bill in the House that would repeal the large truck federal excise tax.

The FET began at 3 percent in 1917 as a way to help pay for World War I. The tax expanded significantly when Congress made it part of the Highway Trust Fund in 1955, and the 12 percent tax now adds up to $22,000 to a large truck’s sticker price, according to the American Truck Dealers. Rep. LaMalfa said the “excessive” tax makes other consumer goods more costly as well. “Even worse, truck owners large and small pay this tax whether a truck is driven 100,000 miles or never driven at all, forcing them to pay taxes on an investment that may not be generating any revenue,” he added.

In 2012, lawmakers considered a similar large truck federal excise tax repeal, but the proposal died in committee.

Large Truck FET: A Primer

The 12 percent tax applies to all new vehicles sold with a gross vehicle weight (GVWR) above 33,000 pounds, and all new trailers with a GVWR above 26,000 pounds. As the tax has expanded in recent decades, it has come under criticism on a number of points.

  • There is a move afoot, especially in Rep. LaMalfa’s home state of California, to replace older rigs with ones that have newer and more efficient engines. There are those who say, not without justification, that the large truck federal excise tax essentially penalizes owner-operators for making such upgrades.
  • The tax is difficult to administer, because there is a difference between an “excise” tax and a “sales” tax. More on that in a minute.
  • At least to some extent, many excise taxes are based on use, but as Rep. LaMalfa pointed out, the large truck federal excise tax is based on sales price. It’s not uncommon for owners to buy expensive, customized trucks that are only suitable for local jobs, so the tax is out of proportion with the usage.

This FET also generates minimal revenue, as depending on new truck sales, the tax may contribute as little as 4.5 percent to the Highway Trust Fund.

Some Large Truck Federal Excise Tax Issues

Unlike a sales tax that the buyer must pay and the seller must report, the buyer must both report and pay the FET by filing Form 720. Commonly, a buyer will purchase an underwight truck that’s not subject to the FET and then modify it, perhaps by adding an additional axle. If the large truck federal excise tax was a dealer-added sales tax, this circumvention would probably work.

But since the tax is self-reported, it must be paid based on the vehicle’s actual size, and not its size when it rolled off the lot. Perhaps due to the underlying unfairness, a couple of rumors began in this area. Contrary to popular myth, there is no six-month grace period and the FET is due on the truck’s entire value and not just on the upgraded size.

There’s more bad news. The IRS often files felony tax evasion charges against owners who try to avoid paying the large vehicle federal excise tax, due to the deceptive nature of the purchase/upgrade circumvention.

Since these issues are so pressing, we’ll delve into them more deeply in a future post.

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.