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Excise Taxes on New Cars

April 13, 2006

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You need to be aware that purchasing certain vehicles may subject you to various excise taxes. The excise taxes may be related to the whole vehicle or only to certain vehicle components (e.g., tires).

These taxes may be hidden costs that could influence your decision in terms of choosing a vehicle. As such, it is well worth your time to discover if there are any applicable excise taxes before you commit to making a purchase.

The "gas guzzler" tax. This tax is imposed on new cars that fail to meet federal fuel economy standards. Although this tax is imposed on the manufacturer, it becomes part of the retail price. Before computing the depreciation deduction for a business car, you must reduce the basis of the car by the amount of the gas guzzler tax you paid. So, you can't recover the tax through depreciation.

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