Gas Guzzler Tax

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Gas Guzzler Tax

The gas guzzler tax is a federal surcharge on new passenger cars in the U.S. that have poor fuel economy. Enacted as part of the Energy Tax Act of 1978, the tax is intended to discourage production and purchase of fuel‑inefficient cars. It is levied on the manufacturer or importer based on a vehicle’s tested combined city/highway miles per gallon (mpg) and is disclosed on the vehicle’s window sticker when applicable.

Key points

  • Applies only to passenger cars (not to trucks, SUVs, or minivans).
  • Paid by the manufacturer or importer, not the buyer.
  • Liability depends on combined mpg: the lower the mpg, the higher the tax.
  • Reported to the IRS on Form 6197 after the end of the model year.
  • Designed in 1978 to reduce U.S. dependence on oil during an energy crisis.

How it works

  • A car must meet a minimum combined fuel economy to avoid the tax (commonly cited threshold: about 22.5 mpg).
  • Vehicles that fall below the threshold are assigned a tax amount that increases as mpg declines. Tax amounts begin at roughly $1,000 for models just under the threshold and rise to several thousand dollars for the poorest performers (historically up to around $7,700).
  • The tax is calculated using the EPA’s fuel‑economy test results for the vehicle; manufacturers report totals at the end of the production year on IRS Form 6197.

Which vehicles are subject

  • Only passenger cars are subject. Light‑duty trucks, SUVs, and minivans are excluded under current law and regulatory interpretations.
  • Historically, the models that triggered the tax have been high‑performance, luxury, and sports cars; occasional muscle‑car variants have also appeared on EPA lists of taxed models.

Fuel‑economy testing and the “in‑use shortfall”

  • Manufacturers use EPA laboratory tests to measure mpg for both window labels and the gas guzzler tax, but labeling mpgs are adjusted downward to reflect real‑world driving conditions (the “in‑use shortfall”).
  • The combined mpg used to determine tax liability is not adjusted for in‑use shortfall, so it can be higher than the mpg shown on the vehicle’s label.

Issues and impact

  • The tax was introduced during the 1970s energy crises to nudge manufacturers and consumers toward more fuel‑efficient cars.
  • The exemption for light‑duty trucks and similar vehicles created a loophole manufacturers exploited as SUVs and trucks gained popularity. As U.S. consumer demand shifted toward SUVs and pickups, fewer passenger cars triggered the tax, reducing revenue collected by the program.
  • In recent years the amount of gas guzzler tax collected has been relatively small compared with other federal tax receipts.

Where to check fuel economy and tax disclosure

  • Consumers can consult the government’s Fuel Economy Guide for mpg comparisons across model years.
  • If a new passenger car is subject to the gas guzzler tax, the dollar amount of the tax should appear on the vehicle’s window sticker.