LEGISLATIVE AND TECHNICAL AFFAIRS
Law & Order
2021: The Year in Review
By Stuart Gosswein
The laws and regulations that govern SEMA members do affect the way automotive specialty-equipment products are made, distributed and marketed. The charge of the SEMA government affairs office is to stay on top of all relevant state and federal legislation and regulations and advocate for industry positions to ensure the best possible outcome for SEMA’s membership. The following are a few examples of critical legislative/regulatory issues addressed by the SEMA government affairs team over the past year.
RPM Act: The Recognizing the Protection of Motorsports Act (RPM Act) has been reintroduced in the 117th U.S. Congress. The bipartisan, pro-motorsports, pro-business legislation will clarify that it is legal under the Clean Air Act (CAA) to make emissions-related changes to convert a street vehicle into a dedicated race car. It will also confirm that it is legal to produce, market and install racing equipment. In 2015, the U.S. Environmental Protection Agency (EPA) issued a draft rule stating that such conversions were illegal, as were products used to make the conversions. The EPA withdrew the draft rule following a huge, SEMA-led public outcry but still stands by this controversial interpretation of the CAA. The legislation (H.R. 3281/S. 2736) is sponsored by Representatives Patrick McHenry (R-NC) and Raul Ruiz (D-CA) and Senators Richard Burr (R-NC) and Jon Tester (D-MT). There has been unprecedented grassroots support for the RPM Act in 2021, as more than 1.5 million letters have been sent to Congress this year supporting the bill.
SEMA Challenges EPA Position on Race Parts: In early 2021, SEMA filed an amicus brief in a lawsuit between the EPA and Gear Box Z Inc. (GBZ) in which the EPA stated that the CAA does not allow a motor vehicle to be converted into a racing vehicle used solely for competition. In its brief, SEMA challenged the EPA’s assertion, noting that “the agency’s interpretation breaks from the plain language of the CAA, the legislative history, and EPA’s regulations and guidance.” The U.S. District Court for Arizona declined to consider the motor vehicle conversion issue raised by SEMA, and GBZ ultimately settled with the EPA over the issue of selling defeat devices for highway vehicles.
PPP Loan Forgiveness: The Paycheck Protection Program (PPP) ended on May 31 after the U.S. Small Business Administration (SBA) issued more than 11.7 million forgivable loans totaling nearly $800 billion to small businesses and other eligible entities. About 93% of the loans were for $150,000 or less. Funds spent on payroll, rent and other eligible necessities are forgivable. The SBA set up a special website allowing borrowers of loans less than $150,000 to submit a simple, one-page form to seek forgiveness.
Disaster Loan Payment Deferments: The SBA extended deferment periods for all disaster loans until 2022, including the COVID-19 Economic Injury Disaster Loan program. For all SBA disaster loans made in 2020, the first payment due date is 24 months from the date of the note (extended from 12 months). For all SBA disaster loans made in 2021, the first payment due date is 18 months from the date of the note (extended from 12 months).
Employee Retention Tax Credit (ERTC): The ERTC program is meant to help employers that suffer significant financial losses or that were fully or partially closed due to a government order but continue to pay workers who are unable to perform their duties. For 2020, the tax credit is equal to 50% of up to $10,000 in qualified wages paid between March 12 and December 31, 2020. The total credit is capped at $5,000 per employee, with a 100-employee limitation. For 2021, the credit is 70% of up to $10,000 in qualified wages per quarter. This means the tax credit is potentially $28,000 per employee ($7,000 for each quarter). Employers who have experienced a 20% or more decline of gross receipts in a quarter compared with the same quarter in 2019 can apply. For 2021, the size limitation was increased to employers with 500 or fewer employees. (At the time of publication, legislation was pending to eliminate the ERTC for the fourth quarter of 2021.) Employers claim the ERTC by withholding payroll taxes for qualified employee wages. If the withholdings do not cover the entire tax credit, the IRS will send a check for the remaining amount.
Trade Show Participant Tax Credit: SEMA-supported legislation was introduced in the U.S. Congress that would provide tax credits to cover 50% of the expenses associated with exhibiting at or attending trade shows and conventions in the U.S. between January 1, 2022, and December 31, 2024. SEMA continues to work with other key industry and trade groups in urging Congress to pass the Hospitality and Commerce Job Recovery Act. The legislation has been referred to the House and Senate tax and finance committees.
Economic Support for Racetracks: SEMA, the Performance Racing Industry and 17 other organizations representing live recreation and amusement venues asked Congress and the SBA to expand the Shuttered Venues Operator Grant (SVOG) program to include motorsports, horse racing, recreation events and mobile amusement. The COVID-19 pandemic posed significant challenges for racetracks and other live entertainment operators, especially when states placed restrictions on the size of gatherings. The U.S. Congress created the $16 billion SVOG program to assist live entertainment and performing arts venues, although it did not include racetracks and many other forms of live entertainment in the list of eligible applicants.
SEMA is working with several industry association coalitions to oppose tariffs on a variety of worldwide products and materials. The following is a summary of specific tariffs.
Steel/Aluminum: The U.S. government imposed global tariffs on steel (25%) and aluminum (10%) beginning in June 2018, with Argentina, Australia, Brazil and South Korea being exempted based on trade agreements. Mexico and Canada were exempted in May 2019. The tariffs generally apply to processed raw materials (steel/aluminum plate, sheets, bars, etc.) but not finished products (wheels, exhaust systems, etc.). However, tariffs were imposed on bumper stampings and a few other finished products due to an import surge. U.S.-based companies may seek one-year tariff exclusions if they can demonstrate that U.S. material is unavailable. The U.S. and the European Union have pledged to address regional disputes that could result in the end of tariffs on E.U. metals in 2022.
China Tariffs: Tariffs first imposed by the Trump administration in 2018 on many imported goods from China, including auto parts, remain in effect. SEMA, along with many other trade associations and companies that comprise the Americans for Free Trade coalition, has urged President Biden to repeal the tariffs but without success to date. Most of the tariffs are set at 25%. The tariffs were first intended as leverage as the United States and China negotiated a Phase One agreement covering increased intellectual property protection and eliminating forced technology transfer. However, the tariffs remained after the agreement was finalized to ensure China’s compliance and as bargaining chips to address cybertheft and reduce the U.S.–China trade imbalance.
Right to Repair: The Federal Trade Commission (FTC) issued a report to Congress titled “Nixing the Fix.” It identified anti-competitive repair restrictions employed by manufacturers for a wide range of products, from automobiles and mobile phones to printers and computers. SEMA and other aftermarket organizations praised the report and are supporting the FTC’s efforts to implement the report’s recommendations. In July, President Biden issued an executive order directing the federal government to increase antitrust enforcement and regulation. The order includes a directive encouraging the FTC to “limit powerful equipment manufacturers from restricting people’s ability to use independent repair shops or do DIY repairs.” The FTC then issued a SEMA-supported policy statement pledging to enforce against repair restrictions that prevent small businesses, workers, consumers and even government entities from fixing their own products. FTC enforcement will include questioning whether any restrictions are a violation of the nation’s antitrust laws. Prohibited actions would include tying a consumer’s product warranty to the use of a specific service provider or product or denying a warranty for the mere presence of a specialty auto part. SEMA is also working with other aftermarket groups to support legislation in the U.S. Congress that would require access to tools, data and information necessary for independent facilities to provide repair and modification services.
Digital Millennium Copyright Act (DCMA) Extension: The U.S. Copyright Office recommended extending an existing exemption that allows vehicle owners and authorized third service and repair parties to perform vehicle diagnosis, repair and modification without fear of prosecution under the DCMA. The exemption was first granted in 2015 and is subject to renewal every three years. The extension was requested by SEMA along with the Auto Care Association and the Motor & Equipment Manufacturers Association. The three trade associations argued that the exemption is needed because vehicles are becoming more digital and the affected parties will otherwise be denied the chance to make vehicle repairs and modifications.
Replica Vehicle Law: SEMA worked with Congress to enact a 2015 law allowing low-volume motor vehicle manufacturers to begin selling replica cars that resemble vehicles produced at least 25 years ago—from 1930s roadsters to 1960s muscle cars and more. Each company could produce up to 325 replicas a year for the U.S. market. The program has been on hold until the National Highway Traffic Safety Administration (NHTSA) issues a regulation to implement the law. The agency completed the rule in early January 2021, but it was not officially published in the Federal Register before the presidential transition. While the rule is scheduled to be reviewed and published in January 2022, SEMA has urged the agency to expedite the process so that companies can begin hiring workers and producing cars for eager customers.
Automotive Cybersecurity: SEMA submitted comments to NHTSA on its updated guidance document entitled “Cybersecurity Best Practices for the Safety of Modern Vehicles.” First published in 2016, the NHTSA document identifies recommended best practices for motor vehicle and equipment designers, manufacturers and suppliers. The updated document incorporates recent agency and industry research and focuses on best practices that have safety implications. SEMA supports cybersecurity controls that also safeguard the ability to modify vehicles and install specialty auto equipment.
Automated Driving Systems: SEMA submitted comments to NHTSA on its advanced proposed rule to begin creating a framework for regulatory oversight of automated driving systems (ADS). The framework is intended to define, assess and manage ADS performance-safety issues while providing flexibility for continued design innovation. Although wide-scale deployment of autonomous vehicles may be several years away, the technology is being actively developed and tested—from cameras, radar and LIDAR to global-position satellite data, vehicle-to-vehicle communications, and vehicle-to-everything devices. The technology is being included in new crash-avoidance safety systems such as automated braking and lane-departure warnings.
Collector Car Appreciation Day: The 12th annual Collector Car Appreciation Day (CCAD) took place on Friday, July 9, 2021. Both the U.S. Senate and the House of Representatives introduced resolutions (H. Res. 491/S. Res. 292) to focus attention on the vital role automotive restoration and collection plays in American society. Thousands of Americans gathered at car cruises, parades, and open houses at SEMA-member companies to celebrate the nation’s automotive heritage. The day is also international in scope, as many Canadian provinces passed resolutions and hosted events. The next CCAD is set for July 8, 2022.
E15 Ethanol: SEMA submitted comments opposing a proposed rule by the EPA to modify or remove the current E15 warning label requirement for gasoline that contains 15% ethanol. Ethanol, especially in higher concentrations such as E15, can cause metal corrosion and dissolve certain plastics and rubbers in older automobiles that were not constructed with ethanol-resistant materials and certain specialty high-performance equipment installed on newer vehicles. The EPA’s proposed new label at the gas pump would weaken the warning message and be smaller in size. SEMA argued that these changes would increase the likelihood of E15 gasoline being used in incompatible vehicles. In a separate action, a federal appeals court found that the EPA had overstepped its authority by issuing a 2019 rule allowing gasoline with up to 15% ethanol to be sold year-round. The court ruling reimposes a summertime restriction for certain E15 sales due to fuel-volatility concerns that higher blends of ethanol combined with warmer temperatures may lead to increased smog.
Recreational Trails Program: The Federal Highway Administration (FHWA) released a study which concludes that the Recreational Trails Program (RTP) should be receiving nearly $300 million annually rather than the $84 million currently allocated from its portion of federal gas tax receipts. The amount is based on an analysis of fuel used for non-highway recreation from the 18.4-cents-a-gallon federal taxes collected at the pump. RTP funds are used to construct and maintain trails for all types of activities, including motorized, non-motorized and mixed-use trails (off-roading, snowmobiling, hiking, biking, cross-country skiing, etc.). SEMA is urging Congress to enact legislation to increase the RTP funding to the FHWA study estimates.
National Monument Boundaries: President Biden issued Executive Orders to restore the size of Grand Staircase-Escalante and Bears Ears National Monuments to their original boundaries. They had been reduced in size under the previous administration.
“Made in USA” Rule: The FTC has consolidated its longstanding policy on enforcing unqualified “Made in USA” claims within a new regulation, “Part 323—Made in USA Labeling.” The regulation does not impose any new requirements but is intended to make it easier for businesses to understand claim conditions and, for the first time, to allow the FTC to seek civil penalties for violations. Companies may still make qualified Made in USA claims for products that include U.S. content or processing but do not meet the threshold for an unqualified claim. Qualified claims include “Made in USA of U.S. and imported parts,” “75% U.S. content,” and “Assembled in USA.” The FTC rule does not supersede state rules that are consistent or would provide greater protection.
Duties on Tires From Southeast Asia: The U.S. International Trade Commission ruled that U.S. industry is being harmed from imports of passenger and light-truck tires at less than fair value (“dumping”) from South Korea, Taiwan and Thailand and that Vietnamese tire producers have received unfair subsidies from the country’s “undervalued currency.” The assessed dumping duties are 14.72% to 27.05% for South Korea, 20.04% to 101.84% for Taiwan, and 14.62% to 21.09% for Thailand. The subsidy rates for tires from Vietnam range from 6.23% to 7.89%.
California—Oceano Dunes OHVs: SEMA and several other organizations sued the California Coastal Commission over its decision last March to terminate all off-highway vehicle (OHV) activity at the Oceano Dunes State Vehicular Recreation Area (SVRA) within three years. The California State Superior Court for San Luis Obispo County was asked to issue an injunction and vacate the commission’s decision. Since 1974, Oceano Dunes SVRA has been a state-designated OHV park managed and operated by the California Department of Parks and Recreation. The SVRA comprises 3,500 acres, of which less than 1,350 acres of dunes and 3.5 miles of beach provide open riding access for OHVs. It is the only opportunity for motorized recreation at a state park along California’s Pacific coast. The lawsuit petitioners include SEMA and Ecologic Partners Inc., which is comprised of the Off-Road Business Association, the American Sand Association and the American Motorcyclist Association District 37. The suit challenges the commission’s claim that there are environmental concerns requiring closure despite decades of OHV access.
Idaho—Custom Vehicles: Idaho Governor Greg Little signed into law SEMA-supported legislation to add a vehicle registration classification for custom vehicles. The bill defines a custom vehicle as a replica vehicle that is at least 30 years old and designed and manufactured to resemble a vehicle that would qualify for classic license plates.
Kansas—Antique Vehicles: Kansas Governor Laura Kelly signed into law SEMA-supported legislation to redefine the vehicles eligible to be registered as antique vehicles. Previously, the Kansas Highway Patrol defined an antique vehicle as being “more than 35 years old and as close to the original as possible, without any significant alterations to the major component parts.” The new law requires only that the vehicle be more than 35 years old, regardless of the age of the component parts installed.
Kansas—Military Vehicles: Kansas Governor Laura Kelly signed into law SEMA-supported legislation to allow for the registration and on-road use of surplus military vehicles. Military surplus vehicle is defined as a vehicle with three axles, is less than 35 years old and was manufactured for use by the U.S. military or any country that was a member of NATO at the time the vehicle was manufactured.
Michigan—Military Vehicles: Michigan Governor Gretchen Whitmer vetoed SEMA-supported legislation that would have allowed for the titling and registration of historic military surplus vehicles. Currently, such vehicles can not be titled or registered for use on highways in the state. In announcing her veto, Gov. Whitmer explained that, while the bill provides an additional safeguard by requiring a safety inspection, it does not provide for any implementation of that requirement.
Mississippi—Vehicle Titling: Mississippi Governor Tate Reeves signed into law SEMA-supported legislation that allows for the titling of vehicles at least 30 years old and missing documents on oath of ownership. Under previous law, there was no such exemption.
Montana—License Plates: Montana Governor Greg Gianforte signed into law SEMA-supported legislation mandating that the state issue waivers for vehicles unable to display a front license plate. Current law permits the display of a single rear-mounted plate for motor vehicles registered as a street rod or a custom vehicle, and a waiver may be issued for vehicles unable to display a front plate. The new law requires the waiver to be issued.
Nevada—Classic Cars: The Nevada House of Representatives failed to pass prior to a key legislative deadline SEMA-opposed legislation that would have significantly impacted the owners of old timers, classic rods, street rods and classic vehicles. Vehicles would have been forced to pass a smog check upon initial registration and be subject to in-person odometer checks at registration and subsequent renewals.
Nevada—Exhaust: The Nevada Senate failed to pass prior to a key legislative deadline SEMA-opposed legislation that would have banned most exhaust modifications. The proposal would have outlawed any modifications that amplified the vehicle’s noise output.
Virginia—Imported Vehicles: Virginia Governor Ralph Northam signed into law SEMA-supported legislation to allow the Department of Motor Vehicles to issue a title for an imported foreign-market vehicle manufactured at least 25 years ago. Previous law allowed for only a negotiable title to be issued to such vehicles manufactured prior to 1968.
Virginia—Vehicle Modifications: Virginia Governor Ralph Northam signed into law SEMA-supported legislation which includes provisions that change certain traffic infractions from primary to secondary offenses. A secondary offense is one for which a citation can be issued only if the driver is stopped for another, separate offense. Beginning March 1, 2021, the following traffic infractions were changed to secondary offenses: operating a motor vehicle without an exhaust system that prevents excessive or unusual levels of noise, without a light illuminating a license plate, or with certain sun-shading materials and tinting films.
West Virginia—OHV Trails: The West Virginia legislature passed SEMA-supported resolutions calling for the creation of a semi-contiguous OHV trail that would run parallel to the Appalachian Hiking Trail. The resolutions are part of an effort to create an interstate OHV trail system that would allow enthusiasts to drive from Alabama to Maine via OHV.
Wyoming—Antique Vehicles: The Wyoming Senate defeated SEMA-opposed legislation that would have significantly restricted the eligibility of antique vehicle registrations. If passed, antique vehicles would have been required to be at least 50 years old, and registration would have been required to be renewed annually. Antique vehicles must currently be at least 25 years old, and registration requires only an initial fee.
Illinois—Antique Vehicles: Illinois Governor J.B. Pritzker signed into law SEMA-supported legislation to allow expanded-use antique vehicles to be driven without limitation for two additional months. Previously, expanded-use antique vehicles were defined as being more than 25 years old “or a bona fide replica” and were limited to traveling to and from auto shows, exhibitions, service stations and demonstrations during the colder months (November 1 through March 31) but can be driven without limitation during the warmer months (April 1 through October 31). The new law expands the months without driving limitations to March 1 through November 30.