How Some States Could Be Discouraging Electric Car Ownership

Electric-car charging station in Clarksville, IN. — Electric-car charging station outside a Walmart in Clarksville, IN.

Electrify America

In a just issued report, Consumer Reports says electric vehicle owners in some states could see their registration fees skyrocket to the point where they pay up to four times the amount that owners of internal combustion engine vehicles pay in gasoline taxes.

The idea is to make up revenue that’s otherwise lost because electric car owners avoid paying the state tax on fuel. Many states are feeling the pinch at the pump with new cars becoming more fuel-efficient and gas-tax increases not being politically popular.

The gas tax is a source of funds used to pay for road improvements. However, CR notes that it’s not necessarily the primary source. In 2016 (the latest year for which data is currently available) the report notes that state gas taxes accounted for less than 29 percent of state revenues that went to highway funding. The remainder is funded via registration fees, tolls, and other sources of tax revenue.

CR says that seven of eight electric vehicle fees instituted or increased so far in 2019 will swell to the point where they are “extremely punitive” by 2025. Not only will they cost electric car owners far more in fees than conventional auto drivers, but the organization warns they could inhibit widespread EV adoption.

Earlier this year Illinois legislators proposed levying a $1,000 annual registration fee on all EVs. It had previously been an additional $17.50 on top of the standard charge. Predictably, opponents were both vocal and vicious over what would amount to a nearly 60-fold increase in registration charges that would become a major disincentive to EV sales. They included startup company Rivian, which is about to begin manufacturing the first in a new line of EVs at a former Mitsubishi plant in Normal, Ill.

As it turned out, cooler heads prevailed and the so-called “EV tax” was reduced to a more sensible $100 on top of the also-increased annual $158 registration fee assessed for all cars.

Currently, 26 states have extra annual fees for EV owners on the books. Another eight are proposing them. Perhaps ironically, these include states like California and Colorado that otherwise grant EV buyers substantial financial incentives to help spur sales for the sake of reducing tailpipe emissions. Curiously, it also includes a number of states in which very few EVs are sold.

CR says the existing fees in Arkansas and Wyoming equate to paying the state gas tax on a vehicle that gets a mere 13 miles per gallon. Among proposed fees, the highest would be for EV owners in Missouri and Arizona. If enacted, they would essentially charge electric car owners the equivalent of gas taxes to keep cars running that are rated at 9 and 10 miles per gallon, respectively.

Not only that, but since these fees are based on registration, rather than miles driven (gallons of fuel consumed), they tend to be especially punitive to those owning electric cars having shorter operating ranges that are only driven sparingly. What’s more, CR notes that since EVs make up such a small percentage of all vehicles on the road, the added revenue received by hiking up registration fees will still be negligible in the battle to rebuild bridges and patch pockmarked pavement.

Could there be a better way to recover lost gas tax revenue that might not dissuade motorists from going electric? We figure one viable alternative would be to assess higher registration fees based upon a vehicle’s curb weight. Heavier vehicles – especially heavy-duty pickups, buses, commercial vehicles, and big-rig trucks – tend to cause more damage to roads and bridges than do lighter modes of transport. However, given the lobbying power of the businesses that would be affected, this probably wouldn’t happen anytime soon.

Another idea some states have been considering is to assess a “use tax” that’s based upon the number of miles a vehicle is driven. One way to determine that would be via data collected by a small transponder that plugs into a car’s diagnostic (OBD II) port. This would be similar to those used by auto insurance companies to reward motorists who drive for only short distances and maintain mannerly driving habits. Privacy and fairness issues (rural drivers who drive more miles than their urban counterparts, though at more fuel-efficient higher speeds, would essentially be penalized) have largely prevented such programs from being implemented.

In the meantime, here’s a rundown of the states that currently charge electric-vehicle owners added fees according to CR’s report and additional information from the National Conference of State Legislatures:

Alabama: $200 annual fee; increasing by $3 per year beginning in 2023.

Arkansas: $200 annual fee.

California: $100 annual fee; starting in January 2021, annual increases will be indexed to the Consumer Price Index.

Colorado: $50 annual fee.

Georgia: $214 annual license fee. The fee is automatically adjusted on an annual basis.

Idaho: $140 annual fee.

Illinois: $100 annual fee.

Indiana: $150 annual fee.

Iowa: $65 annual fee; increases to $130 in 2022.

Michigan: $135 annual fee, indexed to the state gas tax.

Minnesota: $75 annual fee; an increase to $250 is being proposed.

Mississippi: $150 fee; beginning July 1, 2021, it will be indexed to the inflation rate.