Why did FET change?

The Federal Excise Tax on tires has been around since the 1930s. Normally, excise taxes are referred to as "luxury" taxes, though how truck tires can be considered a "luxury" to a fleet, we don't know.

However, there's been pressure to change FET for some time. A couple of times in recent years, there have been moves to add FET to retreaded tires, but those changes never took place.

The big fear was that such a change would price retreads out of the market, drive retreaders out of business and add huge burdens to the manufacturers of new tires to fill the gap. After all, more than half the tires sold in the U.S. every year are retreads, so new tire manufacturers would have to double their capacity if retreads went away.

The latest change in FET has been explained as an effort to "simplify" the tax structure. You'll have to be the judge as to whether this new system is simpler or not.

How was FET calculated in the past?

Basically, FET was based on the weight of the tire. In essence, the heavier the tire, the higher the FET. The most recent formula was:

Or, you could say that truck tire FET was basically $10.50 for the first
90 pounds, then 50 cents for every pound over 90 pounds. Clearly, the excise tax on the commodity, in this case, a tire, was based on the weight of the tire.

How is FET different now?

As of January 1, 2005, the new method for calculating FET bases the amount of tax on the load capacity of the tire.

The new formula is:

Much simpler, right?

But you said this is true only for "most" radial tires.

Yes we did. As it turns out, calculating FET for bias-ply tires is different. And, interestingly, it's also different for calculating FET for wide base radials. Here's the formula for those:

That doesn't look simpler.

We didn't think so either, but that's the law Congress passed, effective January 1 of this year.

How do these new rules affect what we pay?

In virtually every case, FET has changed. Here are a few examples:

That's an increase of almost $2.00 per tire.

Right. Notice however that the FET for all three tires after 1-1-05 is the same. The reason for that is that all three have the same maximum single load,
6,175 lb. at 110 psi.

The steer radial is up. The trailer radial is up a lot, and the drive radial is down.

How does it work for the wide base radials?

Here's a comparison for drive and trailer wide base,
with conventional tires on steers:

What does it all mean?

Basically, while you still have an incentive to use retreads, since they aren't subject to FET at all, the new law tends to reward you for purchasing heavier tires and penalize you for buying lighter tires, like steer and trailer tires.

Theoretically, all this was supposed to be what is called a "revenue-neutral" change, that is, the U.S. government's total revenues aren't expected to go up or down. Only time will tell if that's the case.

And as you can see, there's been a big drop in the price of wide base radials, effectively, a nearly $23 discount per tire.

Does this mean we should switch to wide base radials?

As we've pointed out before, switching to wide base radials is really only recommended if you can take advantage of the weight savings and turn it into revenue-producing payload. [See related story in Product Focus, this issue.]

Given the fact that you may not get the mileage from wide base tires that you're accustomed to getting from conventional radials, and the fact that they may not be quite as retreadable as conventional radials, choosing wide base on FET alone is probably a bad decision.