Avalara: Are electric vehicles exhausting fuel taxation?


More and more electric vehicles (EVs) are plying our freeways – in the United States, electric vehicle registrations increased by 41% in 2020. Although battery-powered cars still represent less than 2.5% of cars on the road. the road in 2021, their number is racing. This is great news for automakers who have turned to producing electric models. But has the growing number of registered electric vehicles reduced tax revenues collected on gasoline and diesel fuels at the state and federal levels?

The federal fuel excise tax is the primary source (84%) of the Federal Highways Trust Fund, which helps support federal spending on transportation infrastructure. Federal grants to state and local municipalities for transit and highway programs account for most of the trust fund expenditure. A 2020 congressional report said federal spending on U.S. highways totaled $ 46 billion in 2019.

All 50 states also impose transportation-related excise taxes that help pay for their highways and roads.

Now, with some 1.3 million electric vehicles on U.S. roads by the end of 2020, fewer people are buying gasoline and fuel excise tax revenues have taken a hit. And with 25 new electric car models available in 2021, sales of electric vehicles are expected to increase and fuel tax revenues are expected to decline further.

Some states have increased their fuel tax rates over the years, and as is generally the case with individual state taxes, the rates and regulations vary. The federal government, however, has not increased its rate since 1993. Currently, the federal fuel excise tax rate for gasoline is 18.3 cents per gallon and diesel at 24.3 cents per gallon. cents. An additional 0.1 cent per gallon is added to the Underground Leakage Storage Tank (LUST) trust fund.

According to Congressional Budget Office estimates, if the trust fund taxes continued at their current rate and “funding for highway and transit programs grew every year at the rate of inflation”, the federal trust could run out of $ 189 billion by 2030.

Falling fuel tax revenues are worrying federal and state authorities and are looking for other ways of financing. The obvious solution is to increase fuel taxes. A 15-cent-per-gallon hike would be needed to bring rates in line with inflation and continue to increase inflation in the future. The Joint Committee on Taxation estimated that this could generate an additional $ 329 billion for the Highway Trust Fund between 2021 and 2030. However, increasing the rate of the fuel tax would reduce business revenues.

Another option to offset declining tax revenues is to tax the purchases and use of electric vehicle charging stations – as of December 2020, 96,536 charging ports were powered at 30,451 locations across the United States. Currently, traditional car drivers subsidize road maintenance and new construction through taxes they pay on fuel. Many proponents of electric vehicle taxes believe that a tax on the “fuel” of battery-powered cars – the electricity sold at charging ports – is a natural parallel for reducing the yield of the gasoline tax.

In fact, 43 states have already registered the tax on vehicle charging stations. Of course, many of these states do it differently. Currently, three options exist for the tax on EV charging stations:

  1. Charging station purchase tax

  2. Flat rate charge for the use of charging stations

  3. Charge for the use of the charging station per kilowatt hour (kWh)

As of September 2021, 35 states and the District of Columbia (DC) levied taxes on all three accounts. Six states levy taxes on purchases of charging stations, but no usage taxes, because these states, broadly defined, exempt sales of electricity delivered to customers: California, Idaho, Illinois, Nevada, Rhode Island and Virginia.

One state, West Virginia, allows a charging station buyer to claim a tax refund after purchase and does not charge a usage tax. Massachusetts is the only state that imposes the flat rate and the kWh tax, but not the purchase tax – the state exempts sales of machinery used to directly supply electricity.

Only seven states remain exempt from charging station taxes for all three categories: Alaska, Delaware, Montana, New Hampshire, North Dakota, Ohio and Washington. Will they follow the 43 other states?

Some industry insiders are wondering if taxes on EV charging stations are a viable solution for financing transportation infrastructure. Although sales of electric vehicles continue to rise, long-term projections still see battery-powered cars as the minority on the highway. Charging station taxes would likely not give the trust fund the jump officials say it needs, as fuel-efficient cars also help create a deficit. Fuel efficient gasoline vehicles obviously consume less gasoline and therefore their use contributes less to the road fund.

Virginia is one of the few states that has also started imposing a Freeway User Fee (HUF) on fuel-efficient cars. And a few other states have started charging flat fees on electric vehicle purchases and registrations to help boost the trust fund. As of November 2020, 28 states had imposed additional registration fees for electric vehicles. Colorado has the lowest allowance at $ 50, and Hawaii the highest charge at $ 225. Alabama, Arkansas, Ohio, and Wyoming increased their fees to $ 200 in 2019. And as many as five of the 28 states have linked the fees to changes in inflation or consumer price indexes. , and therefore inevitable increases.

The way forward to support the road fund is not simple and clear. Each option has drawbacks and complications. But a certain point is that electric vehicle drivers take the same roads as traditional motorists. It would seem fair to expect EV drivers to contribute to the road fund in some ways. Regardless of how federal and state tax authorities deal with this problem, the projected fund shortfall will most likely continue in the form of an ever-changing journey, with stops and starts, twists and turns.

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