State Revenue in the World of Electric Vehicles

The purchase of electric vehicles (EVs) may come with tax credits depending on where you reside. However, some states are adding a tax to electric vehicles, like Mississippi did last October. They joined an ever growing list of states looking to recapture lost tax revenue at fuel pumps as vehicles continue to become more fuel efficient.

Fuel Tax History

To understand the full story, it’s important to know the backstory. In 1919, Oregon implemented the first gasoline tax, 1 cent per gallon. By 1932, every other state and the federal government also created a tax on fuel. Today, that federal tax stands at 18.4 cents per gallon on gasoline and 24.4 cents per gallon on diesel, while the weighted average state tax will run you 31 cents.

The majority of this revenue is used to maintain or upgrade our nation’s roadways. For the past 100 years or so, this method worked quite well. The more you drive, the more fuel you use, the more you contribute to maintaining roads. But with the influx of hybrid and electric vehicles, states will need to find new revenue sources in order to maintain safe and productive roadways. Based on current projections, the Highway Trust Fund will have a shortfall of $138 billion by 2027 while the cost of maintaining and building roads will increase.

Like Mississippi, many states are implementing a $50-$300 fee on electric and hybrid vehicles to make up for this shortfall. Oregon, the first state to implement a gas tax, has now become the first state to implement a vehicle miles traveled tax (VMT). Utilizing telematics, drivers have the option to be charged for miles driven as opposed to fuel consumed. Colorado and California are in the piloting stage. Illinois uses a similar program for heavy trucks.

EV Tax Impacts On Fleets

Should fleets be concerned with these new fees and taxes? Yes, but not for the reason you think.

The small fees on electric/hybrid vehicles and the use of VMT taxes will have little to no effect on total cost of ownership in the short term. Cost is not increasing at this point, it is shifting. The real reason for concern is the administrative tasks that could be created as each state government scrambles to find new revenue sources. Not only will fleet professionals need to adapt to the rapidly changing world of mobility, they will now have to face the reality of a potential seismic shift in tax methodology.

There are lots of factors to consider:

• Will tolls increase?
• What type of additional work would a tax-per-mile program create?
• How do you budget for taxes at time of purchase or registration vs. on each gallon of fuel?

What once could be managed with a strong fuel program, is now spilling into a number of different operating areas and budgets. With all of these questions and uncertainties, a managed vehicle program is more important than ever.

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