Low- or No-Fuel Cars Pose Problem for States Levying Gas Tax

(Stateline.org/MCT) -

A tax on virtue or a matter of fairness? The question ripples through states trying to prop up their ever-shrinking highway funds while eyeing the “free ride” enjoyed by green-vehicle owners.

The fast-growing cohort of people who drive zero- and low-emission cars and trucks can take satisfaction in their lower environmental footprint. But there’s a downside, at least for states and the federal government: When cars gas up at the pump less often, governments collect fewer fuel-tax dollars for highway needs. The lost revenue is just a part of the well-documented decline in highway funds as the federal gas tax remains static, auto fleets achieve ever-higher fuel efficiency and new technology enables alternative fuels.

Enter the notion of recouping at least some lost revenue by charging special fees to alternative vehicles – notwithstanding ongoing efforts by Washington and many states to instead encourage these vehicles through income tax credits, lower registration fees and even free parking spaces. The fees are meeting sporadic success, rankling many drivers and environmentalists.

Lawmakers in Virginia touched a nerve last year with a new $64 annual tax on the state’s 91,000 hybrid owners, 90 percent of them from the northern part of the state near Washington, D.C. Objections, immediate and loud, spurred a petition that garnered more than 7,700 signatures.

Hybrid owners felt singled out for a double whammy, because hybrids using both gas and electric power are still subject to gas taxes when they fill up. Additionally, some bigger hybrids use more gas – thereby paying more fuel tax – than new, highly efficient gas-powered cars that were not covered by the new fee, said Democratic state Del. Scott Surovell, who spearheaded the repeal petition. It was akin to charging non-smokers for not paying their fair share of tobacco taxes – “taxing people for doing the right thing,” he said. The legislature repealed the tax this year.

“The takeaway is: Don’t start taxing energy-efficient behavior that you are trying to encourage,” said Surovell. He said governments instead should figure out how to subsidize clean vehicles until they are widely affordable.

Virginia, however, did retain its annual tax on vehicles using solely electric power, raising the previous $50 fee to $64.

The notion of a fair-share tax resonates with many people for electric-power cars. North Carolina and Colorado this year joined Washington and Nebraska in charging electric-vehicle owners annual fees – $50 in Colorado, $75 in Nebraska and $100 in North Carolina and Washington. Drivers of hybrids so far have been spared in those states.

“Having EV drivers contribute a modest fee is a reasonable and common-sense approach to maintaining our roads and highways,” said Tom Turrentine, director of the Plug-in Hybrid Electric and Vehicle Research Center at the University of California-Davis.

It only hurts the political cause of obtaining government incentives for alternative-fuel vehicles if EV drivers balk at paying such “fair share” taxes, Turrentine said.

Government incentives for green vehicles have helped narrow the price gap between EVs and gas-powered models. That includes the popular leasing market, where companies can receive rebates and incorporate them into leasing fees, Turrentine said. The growth in gas-electric hybrid sales makes them no longer eligible for federal rebates.

While a few states have raised taxes on gasoline, anti-tax politics often work in favor of EV drivers facing special-fee proposals, said Democratic state Sen. Steve Farley of Arizona. Farley has argued against “economic injustice” in seeking a 1-cent-per-mile tax on electric vehicles, or $120 a year for an average 12,000 miles on the odometer. But he has not persuaded fellow lawmakers, despite Arizona’s sinking highway revenues and its 18-cent gas tax, unchanged since 1992.

“Electric cars are one of the reasons the gas tax is dying. While they may be a small percent of the market right now, they are going to get bigger and bigger. Anyone driving an electric car is getting out of paying anything for the roads they are driving,” Farley said. With too few electric vehicles to generate anything close to needed highway revenues anyway, he is now pushing for a task force to come up with long-term highway-funding options.

U.S. sales of electric and hybrid vehicles more than doubled between 2010 and 2013, to nearly 600,000, but still comprise just 4.8 percent of the overall light-vehicle market, according to WardsAuto, a professional information services company that tracks the auto industry. Of those, 83 percent are non-plug-in hybrids.

Critics worry that the special fees could dampen enthusiasm for the clean-vehicle market, especially while sticker prices outpace the price tags of comparable conventional models.

“It’s the kind of disincentive that those who oppose clean vehicles want. They want you to think twice” before switching from gas-powered engines, said Dan Becker, director of the Safe Climate Campaign, which fights global warming. The modest revenue anticipated from such fees still doesn’t provide a way out of the highway-funding crisis, Becker argued, nor should alternative-fuel motorists be responsible for the failure of that funding system.