The Federal Tax on Driving an Automobile: 1942-1946

In terms of structure and administrative scope, the closest that Congress has ever come to a national road user charge was the tax on the “use of motor vehicles and boats” levied by section 557 of the Revenue Act of 1941 (55 Stat. 687, 723).

How did it happen? 

By mid-1941, Congress was addressing the prospect of being drawn into war. The Lend-Lease Act had been enacted in March, and Congress had passed an unpopular extension of the peacetime draft by one vote in the House on August 12.

In order to pay for all this, the Treasury Secretary went to the House Ways and Means Committee on April 24 to ask for an additional $3.5 billion per year in tax revenue for national defense. At the afternoon session that day, Assistant Secretary John L. Sullivan proposed to raise the $3.5 billion per year one-third from progressive income tax, one-third from corporation income tax, and one-third from excise taxes on commodities.

Of the excise taxes, Treasury proposed raising tobacco taxes enough to raise an additional $200 million per year, increasing alcohol taxes enough to raise an extra $178 million per year, and increasing the gasoline excise tax by 1 cent per gallon (from 1.5 cpg to 2.5 cpg), which would be enough to raise an additional $255 million per year.[1]

After Treasury had presented the Administration’s revenue plan, the committee adjourned for the weekend. The following week, they held open hearings. Motorist and trucking groups showed up at the Ways and Means hearings prepared to oppose the Administration’s gasoline tax increase, but by that point, committee chairman Robert Doughton (D-NC) had released his own proposal, which killed the gasoline tax increase in favor of a new tax on the operation of motor vehicles and boats (a suggestion of the chairman of the Joint Committee on Taxation).[2]

For motor vehicles, the tax was a flat $5 per vehicle used on public highways, paid by the person to whom the vehicle was, or was required to be, registered in their state or territory, once per fiscal year. Whether the vehicle was used on public highways on a daily basis or only used once per month was immaterial. ($5 when the tax took effect in February 1942 was the equivalent of about $94 today using CPI-U inflation.)

The tax was opposed by the Roosevelt Administration. Assistant Secretary Sullivan gave the Senate Finance Committee a list of objections to the House-passed bill that sound familiar even today:

  • “The proposed tax has no relationship to the extent or use of the value of the object taxed and, therefore, is unusually inequitable.”
  • “…if [a driver] uses [a car] on 1 day in the week we charge him just as much as the taxicab that runs 24 hours a day except when it is laid up for repairs.”
  • “It taxes a $5,000 town car exactly the same $5 as the fifth-hand car worth only $20.”
  • “This proposed use tax must be collected from 32,000,000 taxpayers located throughout every State and county in the country. This would require an additional personnel in the Bureau of Internal Revenue of at least 3,800 new employees. The administrative cost is estimated to be $9,600,000 or approximately $6 of every $100 of tax collected, which is more than five times the average cost of collecting other excise taxes.”
  • “…to the average motorist who travels 10,000 miles annually the use tax is equivalent in burden to a one-half cent gasoline tax [at a time when the federal gasoline tax was only 1.5 cents per gallon].”[3]

The House passed the tax bill without change (the power of the “closed rule”) on August 4, and while the Senate did have amendments, they didn’t change much of the substance of the motor vehicle use tax. A final version of the law was signed by President Roosevelt on September 20, and the motor vehicle and boat use tax portion was scheduled to take effect for use starting on February 1, 1942.

Proof of tax payment was to be “evidenced by such suitable stamp, sticker, or tag of such for, which shall be affixed to the motor vehicle or boat in such manner, as the Commissioner, with the approval of the Secretary, may by regulations prescribe.” In response to the Administration’s objections, the Senate amended the bill so that most of the administrative cost was borne by the Post Office, which was required to sell the stamps in every Post Office in the United States and transfer all collections monthly to the Treasury. (The law allowed Treasury to transfer part of its annual tax enforcement appropriation to the Post Office for their overhead costs.) Stamps were also printed in pro-rated amounts for portions of a full year (down to 42 cents per month, if one wanted to pay monthly). The law also allowed the IRS to allow private entities to sell the stamps.

Vehicles and boats owned by state or local governments were exempted from the law, but all others operating a vehicle or boat were subject to a misdemeanor criminal penalty of a $25 fine and/or up to 30 days in prison.[4]

The stamps wound up being 2 inches high by 1.5 inches wide. Since the first year’s tax was a pro-rated five months out of a federal fiscal year (February 1 – June 30), the first year’s tax stamps were in the amount of $2.09. (This was the equivalent of $44.17 in October 2022 money, as converted with CPI-U.)

How did it work?

In 1941, the Treasury Department and the Institute of Public Administration formed a blue-ribbon Commission on Intergovernmental Fiscal Relations. Their final report, issued in 1943, stated that “The motor-vehicle taxes at the State level are devised mainly as benefit taxes, and the diversities in rates and other special features which occur are mainly adaptations to special needs and other conditions in each State. The Federal automobile-use tax offered an opportunity for Federal-State administrative cooperation, but the impediments, suddenly confronted, proved too difficult. This is an excellent example of the necessity of developing the implementation and close working relationships which are the condition precedent to joint administration. Even with present limitations, however, there appear to be no insuperable or even impressive difficulties in a program which would require a Federal automobile-use tax receipt as a condition for the issuance of a State license.”[5]

The Commission’s report also addressed equity concerns of the tax:

“The Federal motor-vehicle tax leaves much to be desired from the point of view of equity as well. Available information on the estimated distribution of ownership of family automobiles by family income groups in 1935-1936 indicates that almost 52 percent of the passenger cars were then owned by families with annual income of not more than $1,500. A comparison of the $5 automotive use tax with average automobile registration fees in the States reveals that the $5 Federal-use tax is equal to 27 percent of the average State registration fee in one State and 195 percent in another…

“Data on the distribution of motor vehicles by community-size classes, indicate that more than half of the burden of the $5 use tax falls on communities with 10,000 persons or less and that 31 percent of the burden falls on those living on farms and in unincorporated areas.”[6]

The motor vehicle use tax raised almost $600 million for the Treasury. At its peak (in fiscal 1943, before gasoline and tire rationing had taken their full effect to reduce driving), the tax was bringing in $146 million per year, which is the equivalent of about $2.6 billion per year in today’s money.

Thousands of Dollars
Gross Tax Post Office Net Tax
Receipts Admin. Cost Receipts
FY 1942 $72,625.5 $1,300.0 $71,325.5
FY 1943 $146,289.3 $525.0 $145,764.3
FY 1944 $134,325.5 $525.0 $133,800.5
FY 1945 $128,700.7 $603.8 $128,097.0
FY 1946 $115,959.9 $740.0 $115,219.9
FY 1947 $284.6 $0.0 $284.6
Total $598,185.5 $3,693.8 $594,491.7

(Data source: Annual Report of the Secretary of the Treasury on the State of the Finances for various fiscal years, located on )

As far as compliance goes, an IRS official told Congress in December 1942 that “We estimated originally that something like 32,000,000 car owners were subject to the tax, and approximately 29,500,000 paid [in the partial fiscal-year 1942].”[7]

A year later, an assistant Revenue Commissioner told Congress that receipts were down, but they were unsure whether this was due to noncompliance or to more cars being garaged or junked. He said “We get a lot of letters complaining about the injustice of the tax and that sort of thing. But the revenue yield holds up. Every collector has to put on a drive, however, to enforce that tax…In the State of Arizona, which is a small State in population, the collector put on a drive in August, and he apprehended more than 7,000 delinquents. Practically all of the 7,000 submitted $5 offers in compromise rather than take the cases into the Federal courts.”[8]

But he added: “There is no way of sending out delinquency notices, because we don’t make any record and neither does the post office of people who purchase the stamps.”[9]

In January 1945, Internal Revenue officials had a lengthy discussion of the auto use tax with their House Appropriations subcommittee. The taxmen complained that they had trouble getting timely information on the number of registered vehicles: “We cannot seem to get very accurate figures…The State license years vary to a great extent. Some States maintain their records out in the counties, and some of the States I do not think have a record in any one place of the number of cars licensed. Some States do not title their cars. They issue plates through the licensing bureaus of the counties.”[10]


The degree of compliance with the tax is hard to judge from public records. In its first full year, the number of vehicles taxed (calculated roughly by dividing total receipts by 5) was 96 percent of the estimated total number of privately owned motor vehicles. This dropped to 68 percent by the final full year that the tax was in effect, but one cannot conclusively say if the missing vehicles were just garaged, or still being used on highways without a valid tax stamp.

Assumed # of Total Registered Taxed Share
Taxed Vehicles Private Vehicles of Total #
FY 1943 29,257,857 30,499,608 96%
FY 1944 26,865,108 30,086,189 89%
FY 1945 25,740,143 30,638,429 84%
FY 1946 23,191,970 33,945,817 68%

(Data source: FHWA, Highway Statistics Summary to 1995, Table MV-200.)

At the end of the war, the motor vehicle use tax was one of the wartime taxes that was repealed by the Revenue Act of 1945 (59 Stat. 556, 575) with little debate, effective on June 30, 1946.

When the Highway Trust Fund had its first revenue crisis, in 1959, the Treasury Department considered proposing a new tax along the lines of the World War II motor vehicle use tax, but their Tax Analysis Staff warned: “Initially, the Internal Revenue Service sent out elaborate instructions to the Collectors…requiring collectors to obtain registration lists of motor vehicles from State records. Application forms then were to be sent out to the registrants. This procedure was never carried out because the Congress did not approve the funds necessary to carry out this work. Collection of the tax, therefore, was dependent upon the initiative of taxpayers in coming in to purchase stamps at post offices and collectors’ offices. For enforcement, the Bureau sent out large numbers of deputies shortly after the beginning of each fiscal year to check on the exhibition of the stamp on vehicles on the road. In certain cases they were aided in this work by State police. Evasion of the tax was relatively widespread, it being estimated that never more than 90 percent of the total number of required stamps were purchased. The evasion was particularly undesirable, since the lack of a stamp on a vehicle was noticeable to those persons who had purchased the stamp.”[11]

Complete set of federal motor vehicle use tax stamps covering the taxed period of February 1, 1942 to June 30, 1946. The design stayed the same for the first four years but in the final year, the stamp was rotated 90 degrees and the Liberty Bell was, for reasons now lost to history, replaced with the portrait of Daniel Manning, who had been Grover Cleveland’s first Treasury Secretary.

[1] United States. Congress. House of Representatives. Committee on Ways and Means. Revenue Revision of 1941 (Hearings, 77th Congress, 1st Session). See statement of Assistant Secretary Sullivan on p. 50.

[2] Revenue Revision of 1941 – See particularly the statement of JCT Chief of Staff Colin Stam on p. 86.

[3] United States. Congress. Senate. Committee on Finance. Revenue Act of 1941 (Hearings on H.R 5417, 77th Congress, 1st Session), statement of Assistant Secretary of the Treasury John L .Sullivan, p. 40.

[4] The regulations implementing the tax were published in the Federal Register on February 19, 1942 (7 Fed. Reg. 1080) and a clarification relating to which stamps were to be sold in which post offices was published on June 12, 1942 (7 Fed. Reg. 4418).

[5] United States. Department of the Treasury. Committee on Intergovernmental Fiscal Relations. Federal, State, and Local Government Fiscal Relations. Published as Senate Document 69, 78th Congress, 1st Session. Washington: GPO, 1943 p. 18.

[6] Federal, State, and Local Government Fiscal Relations pp. 528-529.

[7] United States. Congress. House of Representatives. Committee on Appropriations. Treasury Department Appropriation Bill, 1944 (Hearings, 78th Congress, 1st Session) Washington: GPO, 1943. Testimony of J.B. McNamara, Executive Assistant to the Internal Revenue Commissioner, on p. 359.

[8] United States. Congress. House of Representatives. Committee on Appropriations. Treasury Department Appropriation Bill, 1945 (Hearings, 78th Congress, 2nd Session) Washington: GPO, 1944. Testimony of A.H.Cross, Assistant Deputy Commissioner, Accounts and Collections Unit, , on pp. 442-443.

[9] Treasury Department Appropriation Bill, 1945, Cross statement on p. 443.

[10] United States. Congress. House of Representatives. Committee on Appropriations. Treasury Department Appropriation Bill, 1946 (Hearings, 79th Congress, 1st Session) Washington: GPO, 1945. Testimony of A.H.Cross, Assistant Deputy Commissioner, Accounts and Collections Unit, , on pp. 520-521.

[11] Memorandum from Treasury Department Tax Analysis Staff dated April 6, 1959 entitled “Annual Fee for Highway Vehicles” p.13. Original located in folder “DC2 – 7/3 Highway Material, 1957-1960” in the Treasury Department Office of Tax Policy files, National Archives, College Park, Maryland.

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