Study Urges Excise Tax Repeal for Electric Trucking Takeoff
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Repeal of the federal excise tax (FET) on heavy-duty commercial vehicles should be a key tool in the United States’ push to reduce trucking’s greenhouse gas emissions through electrification, according to a study by a nonprofit that searches for solutions to environmental and energy problems.
The report by Resources for the Future lays out the options for speedier widespread electrification of trucking, and its findings back industry demands of recent months, including from American Trucking Associations.
Released May 3, the report argues removing the excise tax on medium- and heavy-duty electric trucks (MHDEVs) can reduce the purchase cost, and that would be part of the long-term solution to reducing trucking and the overall transportation sector’s emissions.
Currently, Internal Revenue Code Section 4051 imposes a 12% federal excise tax on the first retail sale of a truck. The heavy-duty excise tax was established in 1917 to defray the costs of World War I. Given that MHDEVs cost more than diesel vehicles, this excise tax increases the total tax burden for MHDEV purchases, the study found.
An April 18 Senate Environment and Public Works Subcommittee on the future of clean vehicles saw ATA First Vice Chair Andrew Boyle — co-president of Billerica, Mass.-based Boyle Transportation — testify that a new, clean-diesel longhaul tractor typically costs in the range of $180,000 to $200,000. A comparable battery-electric tractor costs upward of $480,000, he said.
Resources for the Future’s researchers said that to put it in perspective, the $40,000 purchase incentive available for MHDEVs through the Inflation Reduction Act of 2022 — one of the key tools in the Biden-Harris administration’s push to fight climate change and reduce emissions — would cover only the excise tax on some very large trucks. An exemption on federal excise taxes for MHDEVs can thus help reduce the price differential with diesel vehicles and make purchase incentives more effective, they said.
Lowering the cost to enter and diversify products can also encourage competition, thus limiting manufacturers’ market power and reducing the upfront purchase price of the vehicles, they added.
Repealing the tax would make a “pretty big financial difference,” Resources for the Future Transportation Program Director Beia Spiller told Transport Topics, noting how large an investment an electric truck would be for smaller fleets.
There’s broad support in the trucking industry for the FET repeal. In February, a coalition of industry groups comprising ATA, American Truck Dealers (ATD) and Zero Emission Transportation Association sent a letter to congressional leaders pushing for the repeal.
The #InflationReductionAct incentivizes the adoption of medium- and heavy-duty #electric vehicles 🚚 ⚡️ —but there are bumps in the road to widespread use. 🛣️@RFF Fellow @starbeia discusses these challenges and potential solutions in the latest installment of In Focus. ⬇️ pic.twitter.com/9FEENDDngU — Resources for the Future (@rff) May 11, 2023
“Half of the Class 8 trucks on the road are over 10 years old and lack the cleaner technologies and fuel efficiency gains of today’s new trucks. The FET is a barrier to our national goal to put more cleaner-emission trucks in service. For electric trucks, the FET is a counterproductive dead weight.”
Meanwhile, National Private Truck Council General Counsel Rick Schweitzer told Transport Topics: “NPTC supports repeal of the 12% FET and, if necessary, replacing the lost revenue into the Highway Trust Fund with a pay-as-you-go tax such as a fuel tax or mileage-based user fee. As ATA and other repeal proponents have said, the payment of 12% upfront on newly purchased or leased vehicles is a disincentive to carriers investing in newer, safer, more efficient and cleaner equipment.”
“Especially now that the stated objective of the federal government is to encourage fleets to transition to cleaner equipment, this tax undermines the Biden administration policy supporting the use of lower emission vehicles,” Schweitzer added.
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Progress has been made in the committee rooms and corridors of Congress following the call to action, stakeholders say. “ATA has seen real progress in advancing a full repeal of this World War I-era tax,” said Jacqueline Gelb, the trade group’s vice president of energy and environmental affairs.
“We have lawmakers from both parties in both House and Senate talking about the extensive benefits of repealing the FET — notably as a cost-effective mechanism to reducing the cost of newer, safer, more fuel-efficient vehicles to achieve emissions reductions sooner — and not requiring the need to offset the relatively small amount of revenue eliminating this tax would cost,” Gelb added.
In the 117th Congress (2021-22), Sens. Todd Young (R-Ind.) and Ben Cardin (D-Md.), and Reps. Doug LaMalfa (R-Calif.) and Chris Pappas (D-N.H.) introduced the Modern, Clean and Safe Trucks Act (HR 8116/S. 2435) to repeal the tax.
Pappas and LaMalfa reintroduced the bill in the House on March 8. Young and Cardin did the same in the Senate.
Some industry groups have qualms about the repeal though, seeking a more nuanced approach. Owner-Operator Independent Drivers Association spokesman George O’Connor said in an email that the trade association would support repeal of the FET if it were clearer how the lost revenue for the Highway Trust Fund would be replaced. The fund finances most federal government spending for highways and mass transit.
“The concern here is, if you repeal the FET, it will primarily enable large carriers to purchase new trucks at lower cost. Not sure it moves many of our guys into the new truck market. But if the [Highway Trust Fund] backfill is industrywide, it creates a scenario where small trucking businesses are paying more taxes to subsidize corporate motor carriers’ purchase of new vehicles that in turn put the smaller guys at a competitive disadvantage,” O’Connor said.
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Spiller sees targeted subsidies for smaller fleets as the most effective solution to that problem. She said there must be thresholds in place to make sure smaller fleets get their share of the wider pot, instead of big fleets gobbling up the funds on offer quickly.
Small fleets have less access to funding than their larger competitors, so it is more challenging for them to shift to new technology, Spiller said. On top of that, the manpower and hours in the day required to manage the process — from purchasing, to infrastructure coordination, to solar and battery storage add-ons that elevate long-term profits and efficiencies — is often in short supply at such companies, she said.