What Is Gas Guzzler Tax

A gas guzzler tax is a tax added on sales of vehicles that have poor fuel economy. The tax amount varies depending on the miles-per-gallon efficiency of the vehicle and ranges from $1,000-$7,700.

Congress established Gas Guzzler Tax provisions in the Energy Tax Act of 1978 to discourage the production and purchase of fuel-inefficient vehicles.

Key Takeaways

  • A gas guzzler tax is a tax added onto cars with low fuel efficiency.
  • It is levied and collected by the Internal Revenue Service.
  • Congress established Gas Guzzler Tax provisions in the Energy Tax Act of 1978 to discourage the production and purchase of fuel-inefficient vehicles.

How Does the Gas Guzzler Tax Work

The Gas Guzzler Tax is assessed on new cars that do not meet the required fuel economy levels. These taxes apply only to passenger cars. Trucks, minivans, and sport utility vehicles are not covered because these vehicle types were not widely available in 1978 and were rarely used for non-commercial purposes. A vehicle is subject to a tax if it gets less than a certain number of miles per gallon. The IRS is responsible for administering the Gas Guzzler Program and collecting the taxes from car manufacturers or importers. The amount of tax is posted on the window stickers of new cars: the lower the fuel economy, the higher the tax.

Calculating the Gas Guzzler Tax

The Gas Guzzler Tax for each vehicle is based on its combined city and highway fuel economy value. Manufacturers must follow U.S. Environmental Protection Agency, or EPA, procedures to calculate the tax. The calculation weighs fuel economy test results for city and highway driving cycles. The combined value is based on 55 percent city driving and 45 percent highway driving. Fuel economy values are calculated before sales begin for the model year. The total amount of the tax is determined later and is based on the total number of gas guzzler vehicles that were sold that year. It is assessed after production has ended for the model year and is paid by the vehicle manufacturer or importer. EPA and manufacturers use the same test to measure vehicle fuel economy for the Gas Guzzler Tax and for new car fuel economy labels. However, the calculation procedures for tax and label purposes differ, resulting in different fuel economy values. This is because an adjustment factor is applied to the fuel economy test results for purposes of the label, but not for the tax. The adjustment is intended to help account for the differences between real-world and laboratory testing conditions.

This difference is referred to as in-use shortfall. To account for it, mpg values listed in the Fuel Economy Guide and shown on fuel economy labels are based on fuel economy test results of the city and highway tests plus three additional tests. The tests measure fuel economy 1) at cold ambient temperatures, 2) at warmer temperatures with the air conditioner running, and 3) when operated at high speeds and high acceleration rates. However, the combined city and highway fuel economy that is used to determine tax liability is not adjusted to account for in-use shortfall, so it is higher than the mpg values provided in the Fuel Economy Guide and posted on the window stickers of new vehicles.