WASHINGTON—A legislative proposal to repeal federal excise taxes on new truck tires has retreaders concerned about the future and skeptical of an alternative plan advanced by new-tire manufacturers. For their part, new-tire makers, which emphatically advocate removal of the tax, also are somewhat leery of the new bill. Members of the American Trucking Associations, which is against the bill, are major customers for tire makers, which themselves often manufacture tread rubber and other products for the retreading market.
The weight-distance tax put forth in the bill introduced May 14 by Sen. John Chafee, R-R.I., is precisely what retreaders, led by the International Tire and Rubber Association, have feared for years. This tax wipes out a traditional price differential retreads have enjoyed over new truck tires.
Asked for his reaction to the bill, Harvey Brodsky, managing director of the Tire Retread Information Bureau, explained that TRIB is purely an informational office and has no lobbying function.
``But if you ask me my personal reaction,'' Mr. Brodsky said, ``our main reason for opposing a weight-distance tax is that people in the retreading industry don't want to see themselves go out of business.''
ITRA Executive Director Marvin Bozarth explained the economics of the situation. The excise tax on truck tires ranges from maybe $9-$10 on a new 10.00-20, to about $26 on the popular 11R22.5, to approximately $33 on an 11R24.5, Mr. Bozarth said.
Since new truck tires run as high as $300 apiece, compared with a retread costing $90-$110 on a casing worth $75 or $80, the tax differential doesn't seem that crucial at first glance.
``But $300 is the small-buyer price for a new truck tire,'' Mr. Bozarth said. ``Fleet buyers get a considerable discount. Furthermore, there have been import 11R22.5s from places like Russia and China for less than $200.''
In Canada, where there is no excise tax on new truck tires, the price differential between new and retreaded truck tires averages about $14 U.S., comparing retreads (cap and casing) with new tires from companies such as Kumho Tire Co., said Brian Hesje, president of Fountain Tire Ltd. in Edmonton, Alberta.
The ratio of retreads to new tires in the Canadian truck tire market is about 1.5:1, Mr. Hesje said. This works out to a 60-percent share for retreads, about the same as in the U.S.
Paul Anderson, vice president of Fargo Tire Service Inc., Fargo, N.D., noted that even if the excise tax were removed in the U.S., truck operators who handle their own casings still will get up to three more tread lives from the tire. He said the cost of a retread is still significantly less than an untaxed new tire, if the customer provides his own good casing.
Ron Bennett, president and CEO of Service Tire Truck Centers Inc. in Bethlehem, Pa., expressed concern about the impact a repeal might have on the environment. ``I think they're going to create a glut of casings,'' he said. ``And the barrels of oil needed to produce a new tire vs. a retread is an issue.''
Mr. Bennett said if the tax is removed, ``it will make all the sense in the world to buy a new tire.'' He said waste tires aren't being adequately recycled now and the additional casings will create eyesores.
Michelin North America said it had not had a chance to evaluate the Chafee bill fully, but supported repeal of the excise tax. ``Besides the fact that the federal excise tax on new truck tires only generates approximately $350 million a year, the calculation, administration and compliance requirements of the tax impose a difficult burden on tire manufacturers, as well as the IRS,'' it said in a statement.
Goodyear, with important interests on both the new-tire and retreading sides, was guarded in its public statements on the Chafee bill.
``The federal excise tax is a tax that places an enormous administrative burden on the new-tire supply chain, but its repeal will have a negative impact on the retreading business without the right provisions, such as a tax credit,'' Goodyear said in a prepared statement.
The Rubber Manufacturers Association is trying to pitch to Mr. Chafee's office a tax credit for retread buyers, said Ann Wilson, RMA vice president of government affairs.
Ms. Wilson has met with Mr. Chafee's staffers several times to discuss the tax credit as an incentive to buy retreads in the absence of the excise tax. ``We feel it is prudent to have a discussion with Sen. Chafee on the idea that we could do something for the retreading industry at the same time as removing the tax, such as a credit,'' she said.
The idea of a credit for retread buyers originated with David Poisson, executive vice president of the Tire Association of North America.
After an effort to repeal the tax died in Congress last year, ``I suggested to our board that we could come up with a solution such as an environmental tax credit for end-users, so an incentive to use retreads would remain in the marketplace,'' he said. ``Our board endorsed that idea in November.''
Top officials of the RMA, TANA and ITRA met in Washington early this year to work out a draft proposal then take it back to their respective boards.
But when Ms. Wilson presented the credit proposal at an ITRA meeting in Chicago, ITRA members weren't enthusiastic.
Mr. Bozarth said he has sent a letter to all ITRA members to get their opinions on the tax credit issue, but added many of them have a lot of questions about how and whether the credit plan will work.
``There is concern over the tax rebate, which could get struck down in a line-item veto, and over the record keeping retreaders would have to do to show their customers actually bought the retreads,'' he said. ``Also, if you buy a retread in January 1999 but don't get a tax credit until April 2000, how's that going to promote buying retreads?''
He said his members like the idea of a tax credit for retreaders. But the RMA and TANA insisted that potential protests from activist groups such as the Citizens for Reliable and Safe Highways, which is investigating the problem of rubber on the road, made an end-user credit more prudent politically, he added.
Meanwhile, a split in opinion among TANA board members caused the group to retreat from its previous position supporting the excise tax repeal. ``I asked the board to maintain a neutral stance,'' said TANA President Jim Shook. At a meeting in Phoenix, it voted to do that.
Now, the tax credit proposal is in the RMA's court. ``We have a policy in place to support this proposal,'' Ms. Wilson said. ``We have all gone back to our boards, and we have agreed to disagree.''
Meanwhile, the Chafee bill has been assigned to the Senate Finance Committee, where the ranking Democrat, Sen. Daniel Patrick Moynihan, D-N.Y., has signed on as a co-sponsor. However, there are no hearings scheduled on the bill.
Tire Business Staff Reporter Chris Collins contributed to this story.