President Signs Highway Legislation

On August 10, 2005, President Bush signed the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). August 10, 2005 now becomes the effective date for the legislation, although specific provisions in the legislation may specify a different effective date for that provision. The tax title of the legislation includes provisions generally extending the excise taxes that fund the Highway Trust Fund and Aquatic Resources Trust Fund. Also included are modifications to the gas guzzler tax with respect to limousines, the excise tax on heavy truck tractors, and the volumetric excise tax credit for alternative fuels.

In the area of aquatic excise taxes, the Aquatic Resources Trust Fund is reformed, the harbor maintenance tax on exports is repealed, and a cap is placed on the excise tax on fishing rods.

In the area of aerial excise taxes, the procedures for the exemption from the fuel tax for crop dusters are modified, fixed-wing aircraft are added to helicopters with respect to the fuel tax exemption for timber operations, the definition of a rural airport is modified, a ticket tax exemption is created for seaplanes and the fuel tax treatment of seaplanes is modified, and sightseeing flights are exempted from the airline ticket tax.

Alcohol excise taxes are modified to repeal the special occupational excise taxes relating to alcoholic beverages, create a new income tax credit associated with having excise tax-paid products in inventory, and relax the filing requirements for small distillers, brewers and winemakers.

Also, an excise tax exemption is created for small firearm manufacturers.

The legislation creates commissions with respect to motor fuel excise tax enforcement and surface transportation infrastructure and authorizes studies of non-transportation use of highway fuels and diesel fuel tax evasion. The legislation also authorizes bonds for highway projects and rail-truck transfer facilities and clarifies the tax treatment of state ownership of railroad real estate investment trusts.

The tax breaks are expected to cost $1.7 billion over ten years. Included as $1 billion of additional revenue raisers are provisions altering the treatment of kerosene for aviation use, reforming the tax collection procedures for farmers buying clear diesel, placing requirements on credit card companies allowing tax-exempt fuel purchases on their cards, requiring entitles subject to federal fuels excise taxes to reregister on change of ownership and imposing penalties for failure to register, permitting the IRS greater access to information on taxable fuel imports, restoring the registration requirement for large draft vessels, and imposing penalties for knowingly selling diesel that does not comply with EPA sulfur diesel regulations.