States Turn to Taxes on Green Vehicles for Roads
Virginia’s transportation bill that went into effect on July 1, it included a new $64 fee for registering “hybrid electric motor vehicles, alternative fuel vehicles, and electric motor vehicles.”. A number of other states have at least considered following suit. North Carolina’s Senate passed a measure that would tax electric vehicle (EV) owners and hybrid vehicle owners $100 and $50 respectively. The measure has yet to make it through the House. Kansas considered taxing plug in EVs as they charge, a measure that would be analogous to the way the gas tax is collected. Arizona lawmakers considered a 1.43 cent per mile tax on EVs. But such actions and proposed actions are not simply about states seeking new revenues to pay for transportation. States are also trying to even the playing field for all those who drive on America’s roads and perhaps to breathe some life back into the concept of a user fee to help maintain them. In doing so though, states must try to balance policies elsewhere that seek to encourage the proliferation of such vehicles because of their potential for environmental benefit.
No Free Rides
Traditionally, U.S. roads and bridges have been maintained through excise taxes on gasoline under the assumption that the more gas a consumer uses, the more the consumer is using the roads. EVs don’t fit in this scheme because they use the roads but not gasoline. This further exacerbates one of the causes of declining fuel tax revenues: more fuel efficient vehicles. Lawmakers justify taxes on green vehicles as an issue of fairness based on the belief that fuel taxes are user fees.
But this concept of fuel tax as user fee is not the only policy consideration in green vehicle taxation. Many states have incentives to help make alternative fuels more affordable for environmental reasons. Some states also currently offer tax breaks for owners of Alternative Fuel Vehicles. Turning around and taxing them for owning such vehicles could appear to contradict that approach and could reduce consumers’ willingness to make the switch from conventional vehicles. For example, Washington State has both a $100 tax on electric car ownership and an Alternative Fuel Vehicle (AFV) exemption from state sales tax.
Finally, federal subsidies are in place that lower the price of electric vehicles to make them more appealing to consumers. In general, these subsidies still far outweigh the new taxes. The federal subsidy for electric vehicles is $7,500. The tax is also incomparable to the sticker price of many electric vehicles: the Tesla S starts at $62,400 and Nissan’s Leaf starts at $21,300. With the price of these vehicles being so high and the subsidies in place being so large, it is unlikely that these comparatively small yearly taxes will be the deciding factor for consumers.
Many of the existing subsidies for alternative fuels are temporary, designed to stimulate a fledgling but expensive market rather than permanently offset a particular pollutant. Washington State’s AFV exemption expires in 2015 while the electric vehicle tax does not. Wired Magazine reports that some EV supporters’ objections to new taxes have to do with timing:
Washington has one of the highest state gas taxes in the country, raking in 37.5 cents per gallon (N.J. taxes are 14.5 cents/gallon, by comparison). That makes it the state’s largest source of transportation revenue. The average fuel economy for a passenger vehicle in the U.S. comes in at 24.6 mpg, meaning the average Washingtonian traveling 12,000 miles a year will pay $182.93 in gas taxes over the course of year. So an EV driver is still better off, but is it equitable?
Sort of, argue EV advocates.
“EV drivers want to pay their fair share,” says Jay Friedland, the legislative director of Plug-In America. “We want the roads to be supported, but we’re still in a phase of early adoption and there’s a greater public good.” That “greater good” is to give electric vehicle technology a chance to crack through its niche status, reducing the continued reliance on fossil fuels from unstable nations. The more state and federal breaks EVs get, the greater the possibility that drivers will look to them as an alternative. But they still need to contribute to the greater good of roads and infrastructure, and Plug-In America agrees.
So as lawmakers consider levying taxes on green cars, they will likely need to take into account the stability of the green vehicle market. It will be up to them in the years ahead to determine precisely when the need to subsidize green initiatives should end and when drivers of such vehicles should be required to help pick up the tab to pay for the roads.