What Is the Gas Guzzler Tax and How Does It Work?

For example, choosing a high-performance vehicle like a Dodge Charger might fulfill a desire for power but result in a substantial gas guzzler tax. On the other hand, a hybrid model may yield savings through tax incentives and reduced fuel costs. California and Oregon are among the multiple states that will require all new passenger cars sold to be zero-emission vehicles by 2035. Overall, the gas guzzler tax appears to have had modest and indirect effects at best.

The adjustment is meant to reflect the differences between real-world driving and laboratory testing conditions. To calculate the shortfall, mpg values listed in the Fuel Economy Guide and shown on fuel economy labels are based on three tests in addition to the standard fuel-economy test. To determine if a vehicle is subject to the gas guzzler tax, go to fueleconomy.gov.

Electric Vehicle Taxes by State, 2025

According to the EPA, revenues from the tax have fallen substantially in recent years as more efficient vehicles enter the market. Thanks to the SUV loophole, the federal gas guzzler tax has nothing to teach on this matter. We certainly know that onerous automobile taxes in various New England states have created hundreds of thousands illegal, out-of-state registrations. Once again, CA legislators will vote on a plan that would levy one-time registration fees of up to $2500 on low-mileage vehicles. Buyers below twice the federal poverty level and businesses with less than 25 employees would be exempt. And buyers of fuel-efficient cars (e.g. the Toyota Prius and Honda Civic) would get hefty “rebates.” Everyone else has to pay for the privilege of paying more at the pump.

California exploring getting rid of the gas tax, replacing it with road charge program

• Were you aware that the gas guzzler tax has been a driving force behind the development and increased sales of hybrid and electric vehicles?
• The lack of significant financial impact raises questions about the tax’s continued relevance in today’s market.
• However, the adjustment factors used in the testing process result in differences between laboratory and real-world driving conditions.
• It excludes trucks, SUVs and Minivans which are used for commercial purpose only.
• The increasing prevalence of hybrid and electric vehicles also suggests a cultural shift towards valuing efficiency.

The state is exploring implementing a California Road Charge, which would replace the gas tax with a mileage-based user fee for drivers who use the roads. As more drivers turn to zero-emissions vehicles, which don’t have to pay anything at the pump, California’s gas tax could soon be a thing of the past. Many northeastern states participate in the Regional Greenhouse Gas Initiative, a regional cap on emissions from power plants. The Massachusetts Clean Energy and Climate Plan mandates emission reductions in, and other regulations on, many sectors. New York recently approved a cap-and-invest program, though it is still early in the development process.

Supplier of Diesel Fuel

Payments are made quarterly through the Electronic Federal Tax Payment System (EFTPS), ensuring timely compliance with federal regulations. When you click on links to various merchants on this site and make a purchase, this can result in this site earning a commission. Affiliate programs and affiliations include, but are not limited to, the eBay Partner Network. You can also look at the Monroney label on the window of a new vehicle, which will indicate whether the vehicle is subject to the Gas Guzzler Tax and display the specific amount of the tax.

Manufacturers calculate the tax liability for each model and incorporate it into the manufacturer’s suggested retail price (MSRP), impacting the overall cost to the buyer. But with a rise in electric vehicles, lawmakers are worried it won’t generate enough money. This includes stretched limousines used for airport transfers and corporate transportation. Other exempted vehicles include emergency vehicles like ambulances and police cars. Vehicles with a fuel economy of 22.5 MPG or higher are not subject to the gas guzzler tax.

Which probably means California is, like the planet, just getting warmed-up. Gas guzzler tax supporters fully embrace the European model, whereby any and all taxes aimed at motorists are a good thing, and those aimed at low-mpg models are great. But the plain truth is that no matter how they’re applied, punitive motoring taxes create an automotive underclass, and enlarge governmental powers. When the gas guzzler tax was born, SUV and light truck sales accounted for less than 25 percent of total new car sales. According to Automotive News, the genres now account for 52.5 percent of all American automobile sales.

By targeting less efficient vehicles, it promotes environmental sustainability and encourages manufacturers to prioritize fuel-efficient designs, reducing carbon emissions. Were you aware that the gas guzzler tax has been a driving force behind the development and increased sales of hybrid and electric vehicles? As consumers seek to avoid the tax, automakers have ramped up production of more fuel-efficient models, fostering the growth of eco-friendly vehicles in the market.

IFTA Quarterly Fuel

• These vehicles were not subject to the gas guzzler tax, which created a loophole that some manufacturers exploited as demand for larger, less fuel-efficient vehicles increased.
• The gas guzzler tax was implemented in 1978 with the goal of discouraging the production and purchase of fuel-inefficient vehicles in order to reduce fuel consumption and dependence on foreign oil.
• It only makes sense that larger vehicles on the road should face some type of penalty if they are not up to par with U.S. standards of fuel efficiency.
• For instance, as of 2024, vehicles with an MPG between 21.5 and 22.4 incur a $1,000 tax, while those below 12.5 MPG face a $7,700 tax.

Vehicles with a miles-per-gallon (MPG) rating below 22.5 are subject to the tax. Importantly, trucks, SUVs, and minivans are excluded due to their classification under federal regulations, influencing consumer and manufacturer decisions. Determining the marginal impact of carbon taxes and environmental programs on the per gallon price of gas is difficult. Some environmental programs like cap-and-trade systems have fluctuating prices, and thus a fluctuating impact on gas prices. This formula allows the tax rate to scale progressively based on just how fuel inefficient the vehicle is. The tax aims to discourage the production and purchase of very gas-guzzling vehicles.

The Gas Guzzler Tax is calculated based on fuel economy ratings from the Environmental Protection Agency (EPA). The EPA calculates the combined city and highway fuel economy ratings for each vehicle model in miles per gallon (MPG). The gas guzzler tax was first introduced in the United States in 1978 as part of the Energy Tax Act, which was passed by Congress as part of the National Energy Act. The objective of this law was to shift away from dependence on foreign oil and gas by incentivizing more fuel efficient vehicles.

It remains to be seen what impact these changes will have on the market and consumer behavior. The in-use shortfall refers to the difference between the fuel economy values listed in the Fuel Economy Guide and the combined city and highway mpg reported on the window sticker of a new vehicle for tax purposes. The adjustment factors are used to account for differences between real-world driving conditions and the test procedures used by the EPA. It’s important to note that fuel efficiency testing procedures differ between the EPA and Internal Revenue Service (IRS) for labeling purposes and gas guzzler tax calculations. While the EPA applies adjustment factors and in-use shortfall to fuel economy test results, these differences do not apply to tax liability calculations. The tax is determined using the EPA’s fuel economy ratings, based on combined city and highway MPG figures.

In what way does the gas guzzler tax alter vehicle pricing?

As consumer preferences shifted towards SUVs and trucks, which are exempt from the tax, a loophole in its interpretation led to minimal collections. In recent years, technological advancements have improved fuel efficiency across all vehicle types, further reducing the relevance of the gas guzzler tax. In order to escape the gas guzzler tax, a car must get at least 22.5 miles per gallon (mpg) in combined city and highway driving. In reaction to the gas guzzler tax, many automakers have boosted their production of hybrid and electric vehicles. This transition not only helps consumers evade the tax but also aligns with a global trend towards sustainability and diminished environmental impact. When selecting a vehicle, consumers must consider both the initial investment and long-term expenses, such as taxes and fuel efficiency.

A few states also levy a tax as a percentage of gross receipts on the sale of fuels, which is difficult to convert into a per gallon rate. The highest of these is in Connecticut, where the Petroleum Products Gross Earnings Tax is 8.1 percent on wholesalers. The Connecticut Department of Revenue estimates the rate as applied to diesel fuel to be about 19.9 cpg, but does not estimate the per gallon rate for gasoline. The Gas Guzzler Tax led to the successive downsizing of most major American passenger autos, and the combination of the tax and late-’70s/early-’80s economic woes effectively killed the American full-size car as it california gas guzzler tax had been known up to that point.