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Washington Insider

You may have heard of an effort by Sen. John Chafee (R-RI) to revise the way in which the federal government taxes the trucking industry. The following is basic information to help you understand what this is all about.

Current taxes eliminated or reduced

The Chafee bill would eliminate the following taxes:

  • The Heavy Vehicle Use Federal Excise Tax ("FET")
  • The 12 percent FET on heavy trucks and trailers sold at retail
  • The FET on new tires

The Chafee bill reduces the federal tax on diesel fuel by six cents per gallon. This makes the federal fuel tax on diesel the same as gasoline – 18.3 cents per gallon.

One new tax created

A new tax is created based solely on the registered weight and number of axles on your vehicle and the number of miles you drive for the year. Miles driven on toll roads are exempted from the tax.

How to calculate what your tax would have been last year under the Chafee bill:

Calculate your total miles driven last year. Subtract the total miles you drove on toll roads last year. Multiply this number by your tax rate as determined in the following chart: Remember to divide your final figure by 100 to get your tax measured in dollars rather than cents.

Sen. Chafee believes that the administrative burden of paying the new tax will be minimal because the calculation is simple and drivers are already required to keep track of their mileage for IFTA.

Policy behind the Chafee tax bill

The tax table in the Chafee bill is designed to make trucks pay a tax that is in proportion to the wear and tear they cause to the highways. Highway engineering research has shown that heavier trucks cause far more damage than lighter trucks. Notice on the Chafee tax chart that trucks that weigh more than 80,000 lbs. begin to pay much higher taxes than trucks that weigh up to 80,000 lbs. This is meant to reflect the research data that shows that very heavy trucks cause a much faster breakdown of the pavement than do lighter trucks.

The total taxes collected by the federal government under the Chafee tax plan will be roughly equivalent to the current taxes eliminated by the legislation ($11 billion). Sen. Chafee points out that under the current law less heavy trucks are paying the same amount in taxes as heavy trucks. This means that lighter trucks are paying more than their fair share of taxes for highway upkeep. In effect, lighter trucks are subsidizing heavier trucks.

One of the benefits of the bill contemplated by Sen. Chafee is that much higher taxes on miles driven by heavier trucks will discourage the push by some for heavier and bigger trucks than allowed today. If very heavy trucks must pay the full cost of their operation, including the wear and tear they cause to the roads, it is thought that the enthusiasm for such trucks will decrease.

OOIDA has taken the position that truck size and weight limits should be frozen right where they are. To the extent that the Chafee bill would support this position is another issue to consider when assessing this bill for yourself.

How will this tax affect you?

Whether the Chafee tax will raise or cut your total tax bill will vary greatly from person to person. Some owner-operators may receive a tax cut of hundreds of dollars and some may experience a tax increase of hundreds of dollars.

Analyzing the effects of a new tax can be a complicated exercise. The reduction of a tax can also mean the reduction of hidden costs associated with the tax.

For instance, the elimination of the federal excise tax on new trucks not only reduces the price you pay for a new truck, but it may reduce the size and cost of the loan you take out to finance the truck. It could also affect the cost of the insurance premiums you pay for the truck.

On the other hand, if you purchase used vehicles, the elimination of this tax will not affect you. The rule to remember as you assess the Chafee tax bill and discuss it with other owner-operators is that it will affect everyone differently.

Related Story:  Congressional Action

Cost allocation for cars & trucks
This chart shows the ratio of
taxes paid to costs imposed

Automobiles............1.0

Pickups/Vans..........1.5

Single-unit trucks
<25,000 lbs..............1.5
25,001-50,000 lbs.....0.7
>50,000 lbs..............0.4

Combination trucks
<50,000 lbs..............1.5
50,000-70,000 lbs.....1.0
70,001-75,000 lbs......0.9
75,001-80,000 lbs......0.8
80,001-100,000 lbs....0.5
>100,000 lbs.............0.4