What Is a Gas Guzzler Tax?

You might not pay the "Gas Guzzler Tax" directly, but it's included in your new car purchase.

gas pump image by timur1970 from Fotolia.com

You’ve heard the term, but perhaps you’re not sure of the extent to which the government has gone to fight the nation’s dependence upon fossil fuels. The "Gas Guzzler Tax" came about when the Energy Tax Act of 1978 was passed by Congress. While the act was created specifically to “discourage the production and purchase of fuel-inefficient vehicles,” according to the U.S. Environmental Protection Agency, the legislation doesn’t apply to all vehicles.


The Gas Guzzler Tax is designed to incentivize the purchase of fuel-efficient vehicles through taxes on fuel-inefficient automobiles.

Exploring the History of the Tax

The Gas Guzzler Tax came about as a direct result of the energy crisis in the early 1970s. It was enacted to tax manufacturers and importers for every fuel-wasting car produced and sold. A chart was developed by the Department of Energy to reflect graduated tax penalties for cars meeting specific miles-per-gallon caps, and tax amounts were gradually increased until 1988. These days, every new vehicle on the market that gets less than 22.5 mpg per gallon of gas is subject to the tax.

How It’s Computed

While automobile energy standards are set by agencies like the EPA and the DOE, the Internal Revenue Service collects Gas Guzzler Taxes from manufacturers and importers on a quarterly basis. Consumers don’t pay the tax directly, but they see the added amount when perusing the car’s disclosure documents. Gas Guzzler Tax rates are based on fuel-economy tests undertaken in urban and suburban settings and they’re computed by averaging city driving (55 percent) and highway driving (45 percent). Each mpg is printed on a new car’s window sticker.

Mileage Equals Tax Rate

If you’re interested in knowing how much the cost of your new car was increased by adding a Gas Guzzler Tax, consider these examples. If an auto’s mpg is between 21.5 and 22.5, the manufacturer pays $1,000 in taxes. Cars consuming fuel between 17.5 and 18.5 mpg add $2,600 to a new car's sticker price and those performing between 14.5 and 15.5 mpg increase the sales tab by $4,500. Extremely inefficient cars getting less than 12.5 gallons to the mile are taxed at the rate of $7,700. You can view the entire chart at fueleconomy.gov.

Exploring Opposing Views

Friends of the Earth, a Washington D.C.-based nonprofit, believes that the Gas Guzzler Tax doesn’t go far enough. The environmental group wants want SUVs, trucks and vans to be subject to the tax, too. In its report, “Gas-Guzzler Loophole; SUVs and Light Trucks Drive Off with Billions,” the FOE states, “Automakers are exploiting a gaping loophole in the federal tax code” by not taxing larger vehicles, left out of the original act because so few of them were on the market when the tax was conceived. Special interest groups, on the other hand, want the Gas Guzzler Tax to remain as is so that farmers and construction workers relying on their autos aren’t punished.

The Future of the Tax

Energy experts and select grassroots organizations continue to push for an expansion of the Gas Guzzler Act to cover trucks, SUVs and vans. “This would level the playing field within the automotive market and provide tremendous financial incentives” to automakers to improve their product’s fuel efficiency, say FOE advocates. An alternative idea backed by the FOE other groups is providing tax credits to manufacturers and importers. The objective of this tax credit initiative is to create an incentive for manufacturers to produce fuel-efficient cars rather than the gas guzzlers that inspired this tax.