Over the past few years, several U.S. states have been providing generous incentives for plug-in vehicles, trying to promote the use of more fuel-efficient, eco-friendly alternatives to conventional vehicles. But, while the tax credits, rebates, and reduced licensing fees have certainly helped accelerate the adoption of electric cars, they have also led to lower fuel revenues, which could threaten the future of the country’s transportation system, given that fuel tax, along with vehicle registration fees, is one of the most significant sources of funds transportation in most states.
As fuel economy of gasoline-powered cars improves, and as the number of electric and plug-in hybrid vehicles on U.S. roads increases, revenues generated from the gas tax declines. As of 2004, state and local gas-tax revenues have been constantly falling for a decade now, and according to the Institute of Taxation and Economic Policy, states have been losing $10 billion annually in transportation revenue because of that.
Now that it’s obvious that incentives and tax exemptions for alternative fuel vehicles are backfiring, and that the gas tax is no longer sustainable as it is, and can’t provide sufficient funding for construction and maintenance of roads and bridges across the country, lawmakers in many states are scrambling to find an alternative way for securing funds for their transportation investments. There are a couple of options that have been taken into consideration over the past couple of months, with one of the potential solutions directly addressing the growing use of plug-in cars.
Electric vehicles are exempt from federal and state gas taxes, which is deemed to be unfair by those who still own gasoline-powered cars, arguing that EVs get a free ride, as they are allowed to use the roads that are largely paid for by revenues from the gas tax, without contributing to it. This is why a lot of policy-makers have been suggesting that electric cars should also be taxed and pay their fair share of transportation infrastructure construction and maintenance costs.
While imposing taxes on electric vehicles goes against the government’s efforts for accelerating their adoption, several states have already decided to go this way, thinking that it would be the lesser of two evils – the other being increasing the gas tax. At the moment, five states are taxing EVs: Colorado, Nebraska, North Carolina, Virginia and Washington, with Arizona, Texas and Oregon expected to join them very soon. For instance, electric car owners in North Carolina now pay a $100 annual fee, which is added to their bills for registration renewal. Washington state, for its part, has imposed a vehicle miles traveled tax, with fees that reflect how much people use the roads.
Although electric car owners have all the right to oppose these types of measures, as they increase ownership costs and may offset the initial savings provided by tax credits and rebates, taxing EVs and making their owners contribute to the reconstruction of the nation’s ailing infrastructure, which they also use, seems like a reasonable thing to do, but the only question now is whether it will deter consumers from buying alternative fuel vehicles in the future, considering that tax exemptions have been among the leading incentives helping boost sales in recent years. In any case, this is one of the least painful ways to make up for reduced gas tax revenues, and chances are that those who are willing to pay $20,000 for a new EV, will be able to get past these extra fees and buy one anyway.