Almost all states and the federal government rely on gas taxes to help pay for transportation projects and keep roads and highways in good condition. Fuel taxes account for 84 percent of federal and 29 percent of state highway funds. But where will the funding come from when more and more drivers switch to electric vehicles?
STORY CREDIT: Consumer Reports
Currently, the federal tax on gasoline is 18.4 cents per gallon. The average state gas tax is 31 cents; it ranges from 8 cents per gallon in Alaska to 51.1 cents per gallon in California.
“The road tax is built into the price of gas. That money goes to support road infrastructure. And EVs don’t fuel up, so electric car drivers don’t contribute in that way,” says Gabe Shenhar, associate director of Consumer Reports’ auto test program. “For now, EVs are a small portion of the market. But this is something to consider, as EV sales increased from 2.1 percent in 2020 to 2.8 percent in 2021, and they’re going to continue to grow.”
There’s a similar dilemma when it comes to hybrid vehicles. A hybrid that gets 50 miles per gallon contributes less in gas taxes than a car that gets 25 mpg.
Some states have compensated for that lost revenue by doubling the registration fees for EVs, for instance. Another approach is to increase tolls on roads and bridges, with every driver paying the same toll, no matter what type of car they drive.
There are proposals for adding a tax to EV charging stations so that drivers are paying when they fill up, similar in spirit to what is done with gas-powered cars. The problem with that is EV drivers mostly charge their vehicles at home. States would be capturing that tax only when drivers charge up at public charging stations.
“The additional fee at registration may be the easiest method of recouping some of the lost gas tax revenue,” explains Kelly Funkhouser, manager of vehicle technology at Consumer Reports.
The problem that many EV owners are facing is that some states are taxing electric vehicle drivers at rates much higher than the average driver pays in gas taxes, effectively punishing drivers for choosing a zero-emission alternative to traditional gas-burning vehicles. That said, most EV drivers benefit from a $7,500 federal tax incentive. A single flat rate tax also does not factor in how much someone drives, meaning that they are inherently unfair to owners who drive fewer miles, who are often older, or have lower income. This will become more important as more EVs enter the used market because older cars on average are driven fewer miles than newer ones.
The bottom line is no one likes taxes, but it’s important that EV owners share the burden to support road and transportation maintenance and upgrades to the country’s infrastructure. But it’s the responsibility of the states to make sure those taxes are equal to or less than current gas taxes and are fair for drivers who travel fewer miles.
It is important for car shoppers to check their local rules to see whether taxes may be higher for an EV, because this would impact ownership costs.