Limousine Industry Hopeful About Eliminating Gas Guzzler Tax

LCT Staff
Posted on May 18, 2005

WASHINGTON, D.C. — The limousine industry hopes a tiny item in a $295 billion highway construction bill will free it from paying a 1970s tax intended to prevent carmakers from producing gas-guzzling vehicles. Since 1991, the Gas Guzzler Tax has added $1,300 to $2,100 to the cost of each limousine, said Barry Lefkowitz, executive director of the Limousine Associations of New Jersey (LANJ) and chief lobbyist for the NLA.

Not paying the tax are the carmakers that produce popular trucks, minivans and SUVs with worse fuel efficiency ratings than limousines.

"This is an issue that the Finance Committee may have to review," said a spokeswoman for the Senate's tax writing panel. "Some people are raising questions about whether the current law makes sense as tax policy."

The gas guzzler law sought to push car manufacturers toward fuel efficiency by imposing a tax on vehicles that get less than 22.5 mpg of gasoline. The tax starts at $1,000 and escalates to $7,700 for cars that get less than 12.5 mpg. Vehicles categorized as light trucks were exempt from the law, as most pickup trucks at the time were used by businesses or farmers.

Small manufacturers, which include companies that converted vehicles into limousines, were also exempt from the tax. That changed in 1991 with a new law that specifically applied the tax to limousines. Since then, Lefkowitz said, the gas guzzler tax has hit the small manufacturers that convert vehicles into stretch limousines and reduced their numbers from 300 to 20. It also has driven up costs for limousine companies, overwhelmingly small operations with one-to-three vehicles, he said.

"There are a number of ironies here," Lefkowitz said. "We are fuel-efficient. We are multi-passenger. We're taking cars off the road, and here we are still paying the Gas Guzzler Tax."

The limousine industry’s tax break, included in a six-year highway spending bill under debate in the Senate, would amount to $46 million through the next decade.

The continued exception for light trucks means that pickups, SUVs and vans escape the Gas Guzzler Tax, even if their fuel efficiency rating falls within the gas guzzler guidelines. Such vehicles make up roughly 55% of new cars registered last year, according to data collected and analyzed by R.L. Polk & Co. Not all would be subject to the tax if covered by the gas guzzler law.

A fuel economy guide, assembled by the EPA and the Energy Department, shows that high performance cars make up the bulk of vehicles subject to the tax. They include some Dodge, Ford, Ferrari, Lamborghini and Porsche models. Among midsize and large cars, manufacturers pay the tax on some Cadillac, Audi, BMW, Mercedes-Benz and Volkswagen models.

For example, the tax is levied on one model of the Cadillac CTS that gets 15 mpg in the city and 23 mpg on the highway. The Cadillac Escalade, an SUV that gets 15 mpg in the city and 20 mpg on the highway, escapes the tax.

The tax is levied on several Mercedes-Benz S-Class sedans, such as the S500 that gets 16 mpg in the city and 24 mpg on the highway. There's no tax on Mercedes-Benz SUVs, the most efficient, which gets 15 mpg in the city and 18 mpg on the highway.

Fuel-efficiency guidelines published by the EPA for consumers differ from the test results the agency uses to determine whether car models should be subject to the tax. Environmental groups pushing for better fuel-efficiency standards say lawmakers should eliminate the inconsistencies. Those groups point to the low amounts of tax collected through the gas guzzler, $79.7 million in 2002, as proof that it has successfully deterred automakers from making inefficient cars.

"It is an anachronism," said Dan Lashof, a senior scientist at the Natural Resources Defense Council. "That means there are gas guzzling passenger vehicles that use more fuel than cars that have to pay the gas guzzler."

Expanding the tax brings the danger that it could burden businesses that buy trucks for work, not discretionary, purposes, said Dennis Fitzgibbons, director of public policy at DaimlerChrysler.

Jerry Taylor, director of natural resource studies at the Cato Institute, said a tax on automakers is not the best way to encourage fuel conservation. The Cato Institute promotes limited government and free markets. "This is a nonsensical argument," he said. "The only reason automakers make the models they make is because those are the models they think consumers are going to buy."

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