兰德-Understanding-and-Assessing-the-Costs-of-the-Federal-Retail-Excise-Tax-on-the-Department-of-Defense_50页_549kb

Summary of "Understanding and Assessing the Costs of the Federal Retail Excise Tax on the Department of Defense"

Core Content

The document analyzes the impact of the Federal Retail Excise Tax (FRET) on the U.S. Department of Defense (DoD), particularly the Army. The FRET is a 12-percent tax on the retail sales of certain heavy trucks and trailers, and it is collected by the Internal Revenue Service (IRS) and passed to the Department of Transportation's Highway Trust Fund (HTF). DoD pays this tax indirectly through its original equipment manufacturers (OEMs), which then seek reimbursement from DoD.

Main Points

• FRET Overview: The FRET applies to vehicles with a gross vehicle weight (GVW) over 33,000 pounds (trucks) or 26,000 pounds (trailers). It is also applied to vehicle refurbishments costing more than 75% of the original purchase price.
• DoD's Role: DoD does not directly pay the FRET but is responsible for reimbursing OEMs for it. The tax is not applied to vehicles used abroad or for storage, nor to vehicles sold to state or local governments for exclusive use.
• Taxable Vehicles: FRET-eligible vehicles include the Family of Heavy Tactical Vehicles (FHTV), Family of Medium Tactical Vehicles (FMTV), Logistics Vehicle System Replacement (LVSR), Mine Resistant Ambush Protected (MRAP) All Terrain Vehicle, and Medium Tactical Vehicle Replacement (MTVR). Vehicles like the Abrams tank, Joint Light Tactical Vehicle, Light Medium Tactical Vehicle, and Palletized Loading System (PLS) truck are FRET-exempt.
• Cost Structure: The FRET imposes both direct and indirect costs on DoD. Direct costs are the reimbursements DoD provides to OEMs for the FRET. Indirect costs include increased administrative and working capital costs for OEMs, which may be passed on to DoD, as well as potential distortions in DoD decision-making.

Key Information

• Direct Costs: These are the tax payments that OEMs make and are reimbursed by DoD. From FY 2007 to 2011, DoD paid over $200 million annually in FRET. The Army accounted for the majority of these payments.
• Indirect Costs: These include administrative expenses, working capital costs (OEMs pay the tax before being reimbursed), and potential inefficiencies in DoD procurement decisions caused by the tax. These indirect costs are considered social costs because they do not benefit the HTF.
• FRET Collection Process: When OEMs deliver vehicles to DoD, they pay the FRET to the IRS, which is then recorded as a Contract Line Item Number (CLIN) and used by OEMs to seek reimbursement from DoD. The tax is not applied if the vehicle is exported within six months of delivery.
• Reform Options: The document outlines three potential reform options to reduce the indirect or social costs of the FRET:
  1. Blanket Exemption: DoD could be exempt from the FRET on all vehicle purchases.
  2. Direct Offset to HTF: DoD could directly offset FRET payments to the HTF, bypassing OEMs.
  3. Annual Payment to HTF: DoD could make an annual payment to the HTF, independent of vehicle purchases.

Administrative and Financial Challenges

• Data Collection: FRET payments are spread across multiple DoD program offices, making it difficult to compile a complete dataset. The document estimates that the majority of FRET payments are captured, though some, like MRAP, are underrepresented.
• HTF Revenue Sources: The HTF is funded primarily by fuel taxes and other sources, with FRET payments contributing a portion of its revenue.
• Uncertainty in Taxability: Determining which equipment on a vehicle is taxable can be unclear, leading to disputes and uncertainty among OEMs and DoD.

Conclusion

The FRET, while intended to fund transportation infrastructure, creates unintended costs for DoD and its OEMs. These costs include administrative burdens, increased working capital expenses, and distorted procurement decisions. The document suggests that reforming the FRET could mitigate these indirect costs and improve efficiency in DoD vehicle acquisition. The three reform options are presented as potential solutions, each with different implications for DoD and the HTF.

Appendices

• Appendix A: Provides an indifference curve-based analysis of how the FRET might influence DoD vehicle choices.
• Appendix B: Discusses the challenges in collecting and tabulating FRET data, including the limitations of existing data sources.
• Appendix C: Reviews the finances of the HTF, placing DoD FRET payments in a broader context.

Abbreviations

• FRET: Federal Retail Excise Tax
• HTF: Highway Trust Fund
• CLIN: Contract Line Item Number
• OEM: Original Equipment Manufacturer
• GVW: Gross Vehicle Weight
• MRAP: Mine Resistant Ambush Protected
• FMTV: Family of Medium Tactical Vehicles
• FHTV: Family of Heavy Tactical Vehicles
• LVSR: Logistics Vehicle System Replacement
• PLS: Palletized Loading System
• OUSD(AT&L): Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics
• MIBP: Manufacturing and Industrial Base Policy
• SME: Subject-Matter Expert
• WACC: Weighted Average Cost of Capital
• CONUS: Continental United States
• OCONUS: Outside the Continental United States