Taxing EVs: no gas means no gas tax

The electric car may have come back from the dead, but it won’t escape life’s other inevitability

How do we pay for the highway system? The roads don’t build themselves, in fact they cost a ton of money to construct and maintain. In the US, most of the money comes from gasoline taxes, which have proven to be an efficient method for funding highways. The tax is collected at the pump and directly related to usage – more miles driven, means more fuel consumed and more taxes paid. 

Over the long term, however, gas taxes will become a less efficient means of filling the highways’ coffers. Electric cars obviously do not consume gasoline, so there’s the first problem. Also, some vehicles, like plug-in hybrids, consume much less gasoline per mile, so owners of these efficient rides pay considerably less into highway funds.

As a result, several states in the US are implementing, or considering, taxes targeting electric cars. 

 

The options

While it’s clear that, in the long run, some changes will be required to the highway funding systems, the big question is: What’s the best solution that will serve all our needs and encourage increasing fuel efficiency?

The last two years have seen proposals in several states, not all of which are comprehensively holistic. Proposals being considered include: 

  • Elimination of the gasoline tax coupled with a new taxation scheme
  • Adding a flat yearly registration fee for electric cars, or more broadly cars that run on fuels other than gasoline and diesel
  • Adding a per-mile tax for electric cars or those with high fuel efficiency
  • Taxing the electricity delivered through a charging station

 While many call for a comprehensive rethink of transportation system funding, many state legislatures are essentially going for the quick fix. Only Oregon and Minnesota are looking at the whole system.

 

Washington State

In 2012, the Washington State Legislature passed HB 2660, which includes a range of tweaks to transportation system revenue. The final bill report noted that 85% of funding for the statewide transportation system came from a variety of taxes and fees imposed on fuels, vehicles and drivers. Of that, 59% comes from fuel taxes and 21% comes from licenses, permits and fees.

That law included a new tax of $100 on EVs that is charged along with the yearly vehicle registration renewal. It applies to any EV with a top speed over 35 mph, and it went into effect on February 1, 2013. 

The fee is due to expire if any legislation in Washington is passed that imposes a miles-traveled tax or fee. 

“Electric vehicles put just as much wear and tear on our roads as gas vehicles,” said state Senator Mary Margaret Haugen. “This simply ensures that they contribute their fair share to the upkeep of our roads.”

 

 

Oregon

In 2001, the Oregon Legislature formed the Road User Fee Task Force (RUFTF), chartered to find a system to offset a drop in gasoline tax revenue from fuel-efficient vehicles.

Oregon has had at least two pilot projects to test road-user-fee collection on a per-mile basis. In the latest pilot, 50 participants paid a couple of cents per mile and received a credit for any gas taxes paid at the fuel pump. They reported miles driven either with a smartphone application or a GPS device, and participants could also pay a flat fee. The variety of choices available was meant to get insight into which plan would be more attractive to electric car owners.

In 2011, the Legislature considered a bill that would have imposed a 1.2-cents-per-mile tax for EV drivers. That rate was set to be equivalent to a 25 mpg gasoline- powered car. 

The law was rejected, but the RUFTF has continued to work on proposals, and is generally interested in instituting a per-mile fee, not just for electric and hybrid vehicles but for any with high fuel efficiency. 

One proposal being considered by the task force is to apply per-mile fees to any vehicle exceeding a 55 mpg fuel efficiency, allowing fees to automatically apply to vehicles as they conform with the new CAFE standard for 2025. 

Draft legislation for the 2013 session of the Oregon Legislature, LC266, would: 

  • Require payment of either a flat annual road usage charge, or a per-mile charge, with the system going into effect on July 1, 2015.
  • Allow those choosing to pay a per-mile charge will be able to request refunds based on fuel taxes paid at the pump, or for miles driven on private property.
  • Require the Oregon DOT to create methods for reporting vehicle miles driven. In the pilot project they used a box connected to the OBD-II port.

HB2453, introduced in late February 2013, would apply a per-mile fee to vehicles with a fuel efficiency (or equivalent) greater than 55 mpg. The bill doesn’t set a fee, but the task force considered fees up to 1.56 cents per mile. At that level there would be a $234 charge on EVs driven 15,000 miles a year. Because it is a tax-raising measure, the bill would require support from three-fifths (60%) of the state legislature.

“This is not about penalizing electric vehicle owners,” said state Senator Bruce Starr. “But why should they get a tax-free ride?” 

 


Singled out

The Plug-in Electric Vehicle Collaborative, an advocacy group in California, published a position paper titled “PEV Collaborative Transportation Funding Consensus Statement,” in September 2012. They wrote, “While all road users should contribute to the transportation system, singling out electricity for new taxation will do little to solve the nationwide transportation-funding shortfall and could undermine the adoption of clean vehicles that reduce emissions and dependence on oil.” The paper went on to note four principles we should keep in mind:

  • Transportation system revenue losses due to vehicle electrification will remain negligible through this decade.
  • Taxation that singles out electricity as a transportation fuel over other alternative fuels is inappropriate.
  • Unlike gasoline or diesel, electricity used as a transportation fuel is generally subject to local utility taxes that fund local services, such as fire departments and local road maintenance.
  • Resolution of the overarching transportation funding problem should treat all vehicles and fuels equitably and should continue to encourage reductions in petroleum consumption and pollution, and increases in energy efficiency.

 


 

Virginia

On the heels of the electric car taxation news from Washington State and Oregon, Virginia Governor Bob McDonnell proposed, in January 2013, a major overhaul in Virginia’s transportation funding. The high points of the plan were an elimination of the gasoline tax, replacing it with a sales tax increase dedicated to transportation funding, and adding a new tax on EVs.

Unlike proposals in other states, this one drew an actual protest rally when Virginians circled the capitol building. A petition drive received thousands of signatures.

The proposal passed by the Virginia Legislature, HB2313, takes this approach: 

  • Replace the current 17.5 cents a gallon gasoline tax with a 3.5% wholesale tax paid by gasoline distributors, and a 6% wholesale tax on diesel.
  • Increase the sales tax from 5% to 5.3%. 
  • Add an additional $100 to the yearly registration fee for hybrid, electric and alternative fuel vehicles.
  • Increase the sales tax on motor vehicle sales from 3% to 4%.
  • Increase money diverted from the general fund to the transportation fund.

The wholesale tax would be paid by gasoline and diesel distributors, rather than by the general public. The sales tax increases would be largely dedicated to transportation funding.

Some of the protest against the bill came from anti-tax crusaders who positioned it as a tax increase. Gov. McDonnell had promised not to raise taxes, but political opponents accuse him of ushering in the largest tax increase since 2004. Passage required gaining much support from Democrats because of anti-tax Republican opposition.

 

Texas

In January 2013, a report in the Texas Tribune quoted Texas state Representative Drew Darby saying “I think we need to make sure that electric vehicles that tear up our roads pay their fair share. Should we have the same registration fee for fuel-burning vehicles as electric vehicles?” 

The quote was picked up by other media as if Texas was about to start taxing electric cars, just like Washington State. However, no legislation of this sort is currently being considered by the Texas Legislature. A query to Rep. Darby’s office drew a reply from his Chief of Staff, Jason Modglin, saying “There is no current proposal from this office to generate a fee on electric vehicles commensurate with a gasoline-powered vehicle’s average fuel tax obligation.”

In 2010, Rep. Linda Harper Brown introduced HB 1669, “Relating to the establishment of an electric motor vehicle mileage fee pilot program by the Texas Department of Motor Vehicles.” The bill would, as the title suggests, create a pilot program for testing a mile-based tax for electric cars, and says mileage could be measured either by a periodic manual check or from “a device installed in the vehicle that electronically reports the number of miles traveled.” It was sent to the Transportation Committee, and had no further activity.

 

Indiana

In the 2013 session of the Indiana Legislature, SB 613 was introduced. The bill’s focus is the collection of retail taxes on alternative fuels, and it imposes a road-impact fee on EV purchases. The bill was immediately referred to the Committee on Tax and Fiscal Policy, which has a long list of bills to consider.

The bill would require a tax on hydrogen, coal-derived fuels, and non-alcohol biofuels, at a rate of $0.18 per gallon gasoline equivalent (GGE). GGE is a standard method developed by the US EPA to compare efficiency between different fuel types. It is based on the BTU content of the fuels being compared, and lets one say that 1.5 gallons of ethanol, 33.41 kilowatt-hours of electricity or 357.37 cubic feet of hydrogen is equivalent to one gallon of gasoline. 

The bill would require payment of an annual “local road impact fee” that applies to EVs and any plug-in hybrid with an electric range of 35 miles or more. The proposed fee is $100 for a passenger EV, $200 for a truck, van, recreational vehicle or bus with a weight under 9,000 lbs, $250 for one under 11,000 lbs, and $500 for tractors meant to be used with semitrailers.  


In one, out the other

“We strongly oppose a tax on EVs. We can’t provide customers an incentive from one hand and then take it back with the other. At some point, EVs will need to pay their fair share for road maintenance, but it’s too early, and any cost increase to the consumer will hurt sales and slow market adoption.”

-GM’s Shad Balch, in response to an electric car tax proposal

 


 

 

Kansas

Kansas state Representative Tom Sloan proposed HB2455 in January 2012, to enact a new fee on electricity for plug-in vehicles. It would be an “at the pump” tax similar in essence to the gasoline tax, but on electricity. 

The proposal was met with opposition, and another bill was almost immediately substituted. That bill became law in July 2012 and called for the Kansas Department of Transportation to “organize a discussion with the public and all interested stakeholders about the long-term feasibility of relying on the motor fuel tax as the primary mechanism of funding the state’s highway maintenance and construction program and as the major contributor of state aid to local government transportation budgets.” The report is due on January 1, 2014.

The original bill would have defined anyone owning or operating a charging station as a public utility, and would have required each station to have its own meter to accurately measure usage. The fee would have been comparable to the existing gasoline tax, in a manner decided by the Kansas DOT but presumably based on GGE.

 

Arizona

In January 2012, Arizona state Representative Steve Farley proposed HB2257, which would enact a per-mile tax on EVs. At the time he said, “One of the only ways we pay for our roadways is through gas tax. If they’re not paying into the gas tax system, we need to find a way of closing that loophole and getting them to pay for the roads they use.”

The proposed fee is $0.01 per mile, to be adjusted for inflation every year.

 

 

California

In January 2013, Assemblyman Scott Wilk introduced AB204, which would create an additional registration fee for “green vehicles.” The bill, as introduced, would “impose a fee in conjunction with registration on green vehicles to address the costs of those vehicles using public roads and highways.” 

 

Minnesota

“People want fairness on the way they’re taxed on their roadway system,” said Tom Sorel of the Minnesota Department of Transportation. The MnDOT has a research program, the Minnesota Mileage Based User Fee Policy Task Force (MMBUFPTF), which is looking to enact a mileage-based user fee.

The task force produced a report in December 2011 that specifically calls out EV drivers for paying no taxes to support the transportation system. In Minnesota, the owner of a light-duty truck getting 20 mpg who drives 20,000 miles per year pays $280 in state and $184 in federal gas taxes. A 40-mpg hybrid owner pays $140 in state and $92 in federal gas taxes for driving the same distance. An electric car owner pays $0. 

The paper also notes that the US Congress concluded any migration to a “Mileage Based User Fee” funding system would require 10-15 years to implement because of the time required to resolve policy, public outreach, and technical/administrative issues.  


Big Brother

The Rand Corporation has published a “primer” titled “Mileage-Based User Fees For Transportation Funding,” which lays out a strong case for a miles-driven-based tax on all drivers. An example implementation would be to require installing a device on a vehicle’s on-board diagnostics port (OBD-II) and transmit data over a cellular data connection.

The organization proposes a laundry list of potential benefits, including: 

  • Reducing traffic congestion by varying the per-mile tax on the time of day
  • Reducing pollution, by making more-polluting vehicles pay a higher per-mile tax
  • Pay-as-you-drive automobile insurance
  • Automated toll collection on bridges or toll roads
  • Internet connectivity as a side benefit for vehicle passengers
  • Improved vehicle safety, if implemented along with connected vehicle systems currently being developed

 The Rand Corporation admits to triggering fears of “Big Brother” knowing exactly when and where people drive, and at what speed.  

However, whether a per-mile tax raises privacy issues depends on the implementation, and the report notes four methods to mitigate those concerns:

  • Measure miles traveled without recording the location.
  • Use a trusted third party to securely protect private data.
  • Design the technology with built-in privacy safeguards.
  • Establish privacy legislation that clearly distinguishes between permissible and impermissible uses of personal travel data.

The paper goes on to note that privacy concerns – “The government is tracking where I drive, and I don’t like it” – are the biggest barrier to adoption of mileage-based vehicle taxes. It recommends the following implementation steps, with an eye to mitigating those concerns:

  • Conduct trials and educational outreach, and include government officials in those trials.
  • Enroll privacy watchdogs and other stakeholders in the planning.
  • Begin with a simple odometer-based system rather than jump directly to the GPS based monitoring over cellular data systems.
  • Provide drivers with a choice of systems to measure miles driven.
  • Focus initially on alternatively fueled vehicles.
  • Provide an option for a flat fee rather than one based on miles driven.

 


 

 

Michigan

In Michigan, HB4608 would increase the yearly vehicle registration fee by $75 for an EV under 8,000 lbs, and $200 for EVs over 8,000 lbs. For plug-in hybrid vehicles, the registration fee would increase by $25 and $100, respectively.

   

New Jersey

SB2531, introduced in February 2013, would exempt passenger vehicles from the motor fuels tax, and replace it with a vehicle-miles-traveled tax that applies equally to all vehicles. The tax calculation will be based on self-reported odometer readings. Any time a vehicle is sold, the odometer reading will be recorded by the state on the vehicle registration. Every year when the vehicle registration is renewed, the owner will self-report the odometer reading and pay a tax based on the miles driven. Fraudulently reporting the odometer readings will result in a fine, and the state can require vehicle owners to report to an inspection station to verify odometer readings. 


Don’t blame us

Jay Friedland, Legal Director of Plug-in America, described the organization’s position in three specific points:

  • EV drivers should pay their fair share of road taxes.
  • EV drivers are not a significant cause of road tax shortfalls, if only because their numbers are still fairly small. We should phase in plug-in road taxes after, perhaps, 100,000 vehicles per state or by some date, e.g. 2020. 
  • A flat EV tax is just as unfair as a flat gas tax would be. And it doesn’t address any of the other causes, or other alternate fuels. A better solution is a weight-adjusted mileage tax for all cars, regardless of propulsion. The best solution would be a road tax based on VMT and weight.

 


 

Vermont

Two amendments to H.510, passed in April 2013, made a few changes to Vermont’s transportation system and gasoline taxes, and called for a study of taxing both electric and propane powered vehicles. The law directs the Commissioner of Motor Vehicles to study “the feasibility, alternative implementation mechanisms, and time line for replacing, in whole or in part, motor fuel tax revenues not collected from operators of plug-in hybrid and all-electric vehicles.”

A November 2012 report by the Vermont Energy Investment Corporation, titled “Alternative Fuel Vehicle User Fee Options,” comprehensively studied the issues and suggested that a yearly fee of $146 would be close to the amount paid by owners of gasoline-powered cars.

 

North Carolina

SB710, Fair Share Contribution for Electric Vehicles, was introduced in April 2013. It applies to any “plug-in electric vehicle that does not rely on a nonelectric source of power.” For such vehicles it imposes an additional $100 yearly registration fee.

 

This article originally appeared in Charged Issue 8 – JUN 2013