Q&A: How Mileage Taxes Could Replace Gas Taxes

Monday, August 5, 2013 10:06 am | 5 Minute Read

Two years from now, thousands of Oregon drivers could get a taste of what the future may hold for the rest of us: They will pay taxes not on the amount of gasoline their cars burn, but on the number of miles they drive.

The move to a “vehicle miles traveled” tax, if it happens, is still a long way off in most corners of the country. But that is why transportation experts and elected leaders are so interested in seeing whether Oregon can make it work.

“Per-mile charges are the most high-profile and discussed possible alternative to the gas tax,” said Jaime Rall, a transportation policy specialist at the National Conference of State Legislatures. “There’s no question about it: States want to know if this is going to be a viable way to fund transportation into the future.”

States are looking for an alternative to the gas tax, because the per-gallon taxes often do not keep up with inflation, and they are bringing in less money as cars become more fuel-efficient.

Oregon hopes its new program, using 5,000 volunteer drivers, will show the public – not to mention hesitant lawmakers – that this alternative is easy and fair. And officials want to prove it can be done without Big Brother-type tracking devices.

Whether taxing miles instead of fuel is a good idea in theory, the Oregon project could answer questions about whether it is a good idea in practice. Seventeen other states have also tested the idea. Most of those studies focused on technical concerns, such as what technology to use to track miles and how to ensure accurate billing, and participants’ attitudes toward the mileage tracking systems. But no other state legislature has taken the next step of addressing how much money to charge per mile, or who should have to pay a mileage tax instead of the gas tax. The Oregon legislation addresses those questions, and, unlike previous pilot projects, the new program is permanent.

Here are answers to some basic questions about the Oregon program, which lawmakers approved in early July. The bill now awaits a signature from Gov. John Kitzhaber, a Democrat. Kitzhaber spokesman Ian Greenfield said the governor supported the bill throughout the legislative session. If the bill clears legal review, Kitzhaber would likely sign it before his Aug. 19 deadline for signing bills.

QUESTION: How would it work?

ANSWER: The new program would start in 2015, using only volunteers. Drivers would choose one of several options to keep track of the miles they drive. All of the options would be provided by private companies.

The choices fall into two broad categories. Basic mileage meters would keep count of miles driven using a car’s odometer. More advanced meters would use GPS technology to keep track of how far and where cars travel, to make sure drivers are not charged for out-of-state or off-road trips.

Eventually, Oregon officials hope that a smartphone application can be developed to supplement the basic meters. Drivers would be able to turn on the expanded service software while they drive out-of-state or on private roadways, to automatically report those mileage exceptions to the state.

The mileage meters would also be linked to cars’ fuel gauges, to measure and report how much gas motorists use.

Meanwhile, the volunteers would still pay gas taxes at the pump. The state would compute how much money drivers paid in gas taxes, and subtract that from the amount they owe in mileage taxes. The state would then send a bill for the difference.

Q: How much more or less would drivers pay?

A: Drivers with gas guzzlers would do well under the new program. Oregon’s gas tax is currently 30 cents a gallon. The mileage tax under the legislation would be 1.5 cents a gallon. So anyone driving a car averaging fewer than 20 miles per gallon would pay less money under the mileage tax than the gas tax, and perhaps even get a refund.

The average fuel efficiency for small vehicles in 2010, according to the U.S. Department of Transportation, was 23.5 miles per gallon. The Obama administration last year set an efficiency goal of 54.5 miles per gallon by model year 2025.

Q: What about people with new cars and electric cars?

A: James Whitty, who helped develop the program for the Oregon Department of Transportation, acknowledged it would be a tough sell to get people with super-efficient vehicles to volunteer for the 2015 launch. But he stressed that the legislation passed less than a month ago, and the department has two years to figure out how to encourage drivers of efficient cars to take part.

That’s important, because the program allows only 3,000 of the 5,000 slots to go to cars that travel 22 miles per gallon of gas or fewer. The remaining spots are for more efficient vehicles.

A working group of lawmakers, transportation officials and citizens proposed applying the mileage tax only to all new cars sold starting in 2015 that run 55 miles per gallon or more. Under that plan, all other drivers would have continued to pay the gas tax.

The idea gained traction in the state House, but faced a steeper climb in the Senate. Oregon requires a legislative supermajority to approve any new taxes, so the new method of taxing efficient vehicles needed the support of three-fifths of state senators. Rather than risk failure, the Senate sponsor pushed the voluntary program instead.

Q: What about privacy?

A: Oregon tried a pilot project between 2006 and 2007 that used state-issued transponders to count miles. What the state found, Whitty said, was the arrangement was expensive and the public did not like having a GPS tracking device installed in their cars.

That is why Oregon turned to private companies during a follow-up pilot program last year, which it conducted with Nevada and Washington state. Mile meters are already on the market for tracking trucks or for allowing insurance companies to charge customers based on the distances they drive.

This year’s legislation limits who can see the information reported by the meters, and it requires the state and private entities to destroy location information from participating drivers within 30 days of using it for billing.

Q: Why Oregon?

A: Oregon is not the only state to test the idea of a mileage tax. In fact, 18 states have run some sort of demonstration, said Rall of the state legislatures group. But Oregon, which began exploring the idea in 2001, is the first state to actually charge drivers the tax during the 2012 trials. Other states reported how much money drivers would owe, but did not collect that money.

“We are forward-looking enough to realize a better solution really isn’t out there,” said Oregon state Rep. Vicki Berger, a Republican.

Oregon is also one of four states (along with Kentucky, New Mexico and New York) that charge trucks taxes based on their weight and the amount of miles they drive. So the state transportation department has experience handling mileage fees, Berger said.

Q: What is it like to drive with a mileage meter?

A: Both Berger and Whitty, the transportation official, participated in the last pilot project, which is the model for the program that will launch in 2015. Both said the test went smoothly.

“The sign-up was easy,” Whitty said. “Choosing your plan was not a problem. Installation was far easier than anticipated. It took people seconds. … And then bill-paying was accurate. Basically, we hit a grand slam.”

Berger said a light glowing from the mileage meter let her know it was working. Otherwise, she said, “it did not change my life at all.” Berger, who drives a Volvo that gets 25 to 27 miles per gallon, said her monthly bills using the mileage tax often were “literally pennies.”

For most drivers, Whitty said, the difference between what they paid at the pump and the extra amount they owed for miles driven was so small, it was barely worth sending the bills every month. The new legislation lets the department send out bills less frequently.

Q: What other options do states have for taxing highly efficient vehicles?

A: At least 27 states tax alternative fuels used in vehicles, such as natural gas, electricity or ethanol, according to the National Conference of State Legislatures. Virginia this year became the 10th state to impose a fee on owners of alternative fuel vehicles. Virginia’s new fee also applies to hybrid vehicles.

PILOT PROGRAMS FOR MILEAGE FEES:

Besides Oregon, 17 states have conducted studies of mileage taxes. Most of them were part of a four-year University of Iowa study funded by the federal government. The other states that have run pilot programs are: