Energy Tax Act

The Energy Tax Act (Pub.L. 95–618, 92 Stat. 3174, enacted November 9, 1978) is a law passed by the U.S. Congress as part of the National Energy Act. The objective of this law was shift from oil and gas supply toward energy conservation; thus, to promote fuel efficiency and renewable energy through taxes and tax credits.

This law gave an income tax credit to private residents who use solar, wind, or geothermal sources of energy. The credit is equal to 30% of the cost of the equipment up to $2000, as well as 20% of costs greater than $2000, up to a maximum of $10,000. There were also tax credits to businesses for renewable energy equipment, amounting to a maximum of 25% of the cost of the equipment.

The renewable energy credits of this law were increased by the Crude Oil Windfall Profits Tax Act of 1980.

The Act also created the Gas Guzzler Tax which applies to the sales of vehicles with official EPA-estimated gas mileage below certain specified levels. In 1980, the tax was $200 for a fuel efficiency of 14 to 15 miles per gallon, and was increased to $1800 in 1985. In 1980, the tax was $550 for fuel efficiencies of 13 mpg and below, and was changed in 1986 to $3,850 for ratings below 12.5 mpg. The Gas Guzzler Tax only applies to passenger cars. Trucks, sport utility vehicles (SUV), and minivans are not covered because these vehicle types were not widely available in 1978 and were rarely used for non-commercial purposes. The tax is collected by the Internal Revenue Service (IRS) and normally paid by the manufacturer or importer. The following chart shows the tax for various levels of MPG as of 2006.

The combined fuel economy MPG value (55% city, 45% highway) is used to determine tax liability. The MPG value is also adjusted slightly to account for differences in test procedures made since the base year, but it is not adjusted for in-use short fall. The unadjusted combined MPG of a vehicle can be approximated from the city and highway values provided in the Fuel Economy Guide by the following equation:

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