How does the gas guzzler tax work?

By Russ Heaps

Why some low-mpg vehicles are taxed as gas guzzlers, and other aren't

Quick facts about the gas guzzler tax:

If you haven't researched current models, shopped for new vehicles, or even dreamed about a high-performance car, you may have only a casual familiarity with what is known as the gas guzzler tax. It's an excise tax the government assesses automakers for cars that don't meet a minimum designated mileage number. For most offending models, the carmakers pass the tax along to the consumer. You will find it on the Monroney Label (window price sticker) on the glass of new cars.

Our goal here is simply to inform you about the gas guzzler tax: What it is, how it works, which cars it affects, and if it has a future.

Gas guzzler tax background

In the late 1970s, the U.S. Congress, in an effort to conserve fossil fuels, passed the 1978 Energy Tax Act. It awarded tax breaks to citizens and businesses employing specific renewable energy solutions to reduce the use of fossil fuels like oil and natural gas. Also included in the legislation was a blueprint to tax cars falling below the regulation's 22.5 miles per gallon (mpg) standard. Today, we know it as the Gas Guzzler Tax (GGT).

Although the GGT has some merit in the campaign to discourage people from buying lower mpg vehicles, the value of its impact on overall fuel consumption is minimal. Furthermore, the regulation is, as you'll read on, outdated.

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What is the gas guzzler tax?

The GGT is a penalty the government imposes on carmakers for every vehicle they make that doesn't meet the minimum government-estimated fuel-economy standard. That standard is 22.5 mpg in combined city and highway driving. It's a progressive tax, which increases with each mile a car's combined mpg sinks below the standard, but more about that later.

Although the government dings the carmakers for the tax, the carmakers usually pass it on to the consumer as an added cost item on the Monroney label in the window. Regardless of whether the automaker adds the tax as a line-item cost in the pricing, it must post the tax amount in the window sticker's fuel-economy section.

Tasked with policing the GGT, the Environmental Protection Agency (EPA) determines the list of offending models. You can identify vehicles subjected to the Gas Guzzler Tax by checking out the EPA's 2023 Fuel Economy Guide. Look for cars with "Tax" listed in the "Notes" field of the vehicle listings.

Also read: New 2023 EV tax incentives: How they work, which cars qualify, and where to get even more savings

How does the gas guzzler tax work?

The table below shows the 12 tax levels that have been in place since 1991, including "No Tax" for 22.5 mpg. As fuel economy decreases, the amount of the GGT levied on the car increases.

Combined fuel economy of:                  Amount 
   at least 22.5 mpg                         No tax 
   at least 21.5, but less than 22.5 mpg     $1,000 
   at least 20.5, but less than 21.5 mpg     $1,300 
   at least 19.5, but less than 20.5 mpg     $1,700 
   at least 18.5, but less than 19.5 mpg     $2,100 
   at least 17.5, but less than 18.5 mpg     $2,600 
   at least 16.5, but less than 17.5 mpg     $3,000 
   at least 15.5, but less than 16.5 mpg     $3,700 
   at least 14.5, but less than 15.5 mpg     $4,500 
   at least 13.5, but less than 14.5 mpg     $5,400 
   at least 12.5, but less than 13.5 mpg     $6,400 
   less than 12.5 mpg                        $7,700 
Source: EPA Gas Guzzler Tax Program Overview 

Which cars have the gas guzzler tax?

This is where the GGT shows its age. Remember, the GGT sprang from the 1978 Energy Tax Act. The legislation excluded pickup trucks because, at the time, they were still considered strictly work vehicles. Although the term "SUV" was coined in a 1974 Jeep Cherokee brochure, SUVs, as we know them, were still years away. Moreover, no one in 1978 imagined that 45 years later, SUVs and crossovers would represent more than 50% of total light vehicle sales. Yet, you won't find an SUV on the GGT list.

Also read: What California's ban on gas cars could mean for you--even if you don't live there

If you check out the EPA Fuel Economy Guide and search for cars the government taxes as gas guzzlers, you may be puzzled to discover some models delivering less than 22.5 mpg aren't taxed. For example, the Jaguar F-Type Coupe (19 mpg), the Chevy Corvette (19 mpg), and the Nissan Z with a manual transmission (20 mpg) aren't taxed. Why might that be?

Without wading too deep into the weeds, the EPA employs a more comprehensive set of tests when determining the mpg numbers it posts on the Monroney Label than it does for identifying gas guzzlers. In fact, in 2008, the EPA added three additional test cycles, for a total of five, to calculate the combined mpg we find on a vehicle's window sticker. Those extra cycles include:

The extra cycles reach a combined mpg more in line with what a driver will experience daily. When calculating combined mpg for assessing the GGT, the government uses a 2-cycle (city and highway) methodology for a pure average combined mpg.

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Examples of cars with a gas guzzler tax

Remember that the calculation procedures for both the GGT and label purposes differ. The mpg figures on the window sticker and in the Fuel Economy Guide account for "real world" driving. As such, the mileage figures for tax liability are higher than those on the window sticker and in the Fuel Economy Guide.

Nearly 70 models of 2023 cars have a GGT. Here are a few examples with their GGT. The EPA size classes are based on interior passenger and cargo volumes.

Two-seater cars

Mini-compact cars

Mid-size cars

Full-size cars

This story originally ran on KBB.com.

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04-12-23 0502ET

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