How to tax EVs

[LavaRand]

A topic that keeps coming up is how EVs should be taxed. This merits its own discussion.

First let's review how ICE vehicles are taxed. In addition to fixed registration costs, ICE vehicles are subject to a fuel tax. There is a federal component that's the same across the country, and most states (all states?) have a state fuel tax as well, which varies by state.

The fuel tax has several good properties.

1. It's approximately proportional to road use, which makes it a "use tax". It's generally good thing to charge taxes back to the people who use the infrastructure / service. It helps manage demand and is perceived as "fair".
2. It's transparent to consumers (puts the burden of tax collection on retailers and wholesalers) and paid gradually according to use
3. The state component approximately taxes miles driven in each state. Taxes paid in Virginia will probably be taxing road use in Virgina (with the exception of cross-border travel but it's decently close).

Problems with the fuel tax:

1. It's not enough to really fund the infrastructure. It has not been updated to match inflation. This is not intrinsically a problem, but it means the contribution of the fuel tax to road funding has become lower over time and roadway infrastructure has been funded from other sources more over time.
2. State fuel taxes are used for a variety of things besides infrastructure. Not nefariously; it's just up to the state. Texas uses most of its fuel tax revenue for education, for example, by design.

Proposals for taxing EVs:

1. Don't do anything. EVs don't make pollution, they don't burn fuel, so they don't pay fuel tax, and there's no problem with that.
   • This has been status quo for a while, but seems to be cracking. The perception is that EVs aren't paying "their fair share" toward road infrastructure. Don't forget the fact that EVs are generally heavier than ICE vehicles.
2. Charge a yearly flat tax. We saw this proposed in the recent BBB, but I think it was removed. Texas has a $200 flat annual EV tax.
   • The downside of this is that it's not proportional to road use. People who don't drive much will be forced to pay an outsized contribution.
   • Also, while it works for state taxes in the case of TX, because the tax can just be charged with the annual registration costs, the infrastructure to collect and remit a federal annual tax is not in place.
3. Charge a federal / state tax on electricity used to charge EVs. This would mimic the gas tax. But it's not clear how this would be done, and I haven't seen it seriously proposed
4. Charge a use tax by mileage and / or weight.
   • This could be done both for ICE and EV actually, but is particularly useful for EVs. The main problem seems to be privacy implications. While a federal tax could be done by simple odometer readings, tracking miles driven in each state would require GPS tracking or detailed bookkeeping. GPS tracking has privacy problems, and detailed bookkeeping is not going to be done by individuals. Note that commercial trucks already have to track miles driven in every state for tax purposes. In the old days, it was a manual log book. Nowadays, it's mostly GPS.
   • The secondary problem is the infrastructure doesn't exist to collect and remit such tax whether it be federal or state. Consumers don't like sending big checks annually for taxes, and fraud is a problem.
5. Tolling. There have already been proposals to unify the multiple "ezpass" tolltag systems across the country. By simply having a nationwide standard for RFID tolltags, make the roads toll roads, get rid of the gas tax, and all users simply pay by use. Some propose the roads should have been funded this way from the start.
   • Requires some physical infrastructure and tax-remittance infrastructure
   • Bills according to use, potentially even different rates based on congestion or time
   • Low fraud, can be billed monthly or something better than annual
   • The main objection seems to be privacy concerns.

What do you think is the best system? Did I miss one? Personally I'm a fan of reworking the system so both ICE and EV are treated the same. Trying to have two different systems and balance them based on the ongoing cost of electricity vs. gasoline, fuel efficiency changes, hybrids, etc. seems unworkable in the long run. I would go for a federal annual use tax by weight+mileage, based on odometer readings, and let the states figure out what they want to do on their own (tolling, or their own annual tax, etc).

 

[Brons2]

Tolling. There have already been proposals to unify the multiple "ezpass" tolltag systems across the country. By simply having a nationwide standard for RFID tolltags, make the roads toll roads, get rid of the gas tax, and all users simply pay by use. Some propose the roads should have been funded this way from the start.

• Requires some physical infrastructure and tax-remittance infrastructure
• Bills according to use, potentially even different rates based on congestion or time
• Low fraud, can be billed monthly or something better than annual
• The main objection seems to be privacy concerns.

Tolled user fees is probably the most fair way to do it, and prevalent in many other countries. That said people will scream about freedom if this is implemented.

 

[ripcord]

We had to buy tabs for the wife's Prius this month and we saw that they've added a $75 per year Hybrid fee. I think a surcharge on licensing fees makes the most sense. I like that it is visible and obvious. Taxes shouldn't be hidden or obfuscated, which is why I don't like ones that are added at the pump or the outlet.

 

[GrumpyCat]

I have paid $200/year to Alabama for years, recently increased to $203. Is 2-3x what I would pay in state gas tax so it is more than making up for Federal kickbacks. Stupid to send tax revenue to D.C. only to have bureaucrats there decide how to give it back to the states.

 

[LavaRand]

Tolled user fees is probably the most fair way to do it, and prevalent in many other countries. That said people will scream about freedom if this is implemented.

When I've driven overseas in Japan or France, any time I got out of the city basically every expressway was tolled. They were generally smooth, fast roads, in good repair, with well-maintained facilities, but tolled. So it seems like that's how it's done already other places.

When I lived in TX, it seems like any newer big road is already tolled already, and having a toll bill is just a fact of life for Texans in the cities. And yeah, I didn't like the privacy implications all that much. Every now and then, somebody would get nabbed in a divorce suit based on tolltag records showing them visiting their girlfriend or something. But then, at least one guy I remember got off a murder charge based on tolltag data that showed him in another part of the state at the time.

I wonder if somebody could just come up with an anonymized, token-based way to pay tolls that don't log your position. Seems trivial in an era where we have all these Internet security protocols like VPNs, SSL, or whatever, to make a post-paid system that's anonymous.

But even that is not required if you just use a prepaid system, like they do for metro passes. You just have a pre-paid pass on your car, and as long as it's valid, you pass anonymously. So if the tollbooth scans a valid tag and deducts the balance, it lets you go and doesn't log anything else. If it fails to scan a valid tag, THEN it takes a picture of your license plate and sends you a bill. That would incentivize people to keep their tags paid up. This is basically how it works with metro card systems like the DC Smartrip cards for decades. You load a balance on a card, any card, and to use the metro, you scan it, if it's valid, it lets you in, but it's not tied in any way to your identity. You can give the card to somebody else or whatever and it will work the same for anyone.

 

[oil pan 4]

A topic that keeps coming up is how EVs should be taxed. This merits its own discussion.

First let's review how ICE vehicles are taxed. In addition to fixed registration costs, ICE vehicles are subject to a fuel tax. There is a federal component that's the same across the country, and most states (all states?) have a state fuel tax as well, which varies by state.

The fuel tax has several good properties.

1. It's approximately proportional to road use, which makes it a "use tax". It's generally good thing to charge taxes back to the people who use the infrastructure / service. It helps manage demand and is perceived as "fair".
2. It's transparent to consumers (puts the burden of tax collection on retailers and wholesalers) and paid gradually according to use
3. The state component approximately taxes miles driven in each state. Taxes paid in Virginia will probably be taxing road use in Virgina (with the exception of cross-border travel but it's decently close).

Problems with the fuel tax:

1. It's not enough to really fund the infrastructure. It has not been updated to match inflation. This is not intrinsically a problem, but it means the contribution of the fuel tax to road funding has become lower over time and roadway infrastructure has been funded from other sources more over time.
2. State fuel taxes are used for a variety of things besides infrastructure. Not nefariously; it's just up to the state. Texas uses most of its fuel tax revenue for education, for example, by design.

Proposals for taxing EVs:

1. Don't do anything. EVs don't make pollution, they don't burn fuel, so they don't pay fuel tax, and there's no problem with that.
   • This has been status quo for a while, but seems to be cracking. The perception is that EVs aren't paying "their fair share" toward road infrastructure. Don't forget the fact that EVs are generally heavier than ICE vehicles.
2. Charge a yearly flat tax. We saw this proposed in the recent BBB, but I think it was removed. Texas has a $200 flat annual EV tax.
   • The downside of this is that it's not proportional to road use. People who don't drive much will be forced to pay an outsized contribution.
   • Also, while it works for state taxes in the case of TX, because the tax can just be charged with the annual registration costs, the infrastructure to collect and remit a federal annual tax is not in place.
3. Charge a federal / state tax on electricity used to charge EVs. This would mimic the gas tax. But it's not clear how this would be done, and I haven't seen it seriously proposed
4. Charge a use tax by mileage and / or weight.
   • This could be done both for ICE and EV actually, but is particularly useful for EVs. The main problem seems to be privacy implications. While a federal tax could be done by simple odometer readings, tracking miles driven in each state would require GPS tracking or detailed bookkeeping. GPS tracking has privacy problems, and detailed bookkeeping is not going to be done by individuals. Note that commercial trucks already have to track miles driven in every state for tax purposes. In the old days, it was a manual log book. Nowadays, it's mostly GPS.
   • The secondary problem is the infrastructure doesn't exist to collect and remit such tax whether it be federal or state. Consumers don't like sending big checks annually for taxes, and fraud is a problem.
5. Tolling. There have already been proposals to unify the multiple "ezpass" tolltag systems across the country. By simply having a nationwide standard for RFID tolltags, make the roads toll roads, get rid of the gas tax, and all users simply pay by use. Some propose the roads should have been funded this way from the start.
   • Requires some physical infrastructure and tax-remittance infrastructure
   • Bills according to use, potentially even different rates based on congestion or time
   • Low fraud, can be billed monthly or something better than annual
   • The main objection seems to be privacy concerns.

What do you think is the best system? Did I miss one? Personally I'm a fan of reworking the system so both ICE and EV are treated the same. Trying to have two different systems and balance them based on the ongoing cost of electricity vs. gasoline, fuel efficiency changes, hybrids, etc. seems unworkable in the long run. I would go for a federal annual use tax by weight+mileage, based on odometer readings, and let the states figure out what they want to do on their own (tolling, or their own annual tax, etc).

Since clearly EVs need government baby daddy to help sell them and the tax credit is going away I say continue the cheap registration if the states want to, if the states want to slap a tax on them equivalent to running a gas car 40,000 miles per year on top of what one would normally pay for gas car registration, let them.

 

[fsdork]

But even that is not required if you just use a prepaid system, like they do for metro passes. You just have a pre-paid pass on your car, and as long as it's valid, you pass anonymously. So if the tollbooth scans a valid tag and deducts the balance, it lets you go and doesn't log anything else. If it fails to scan a valid tag, THEN it takes a picture of your license plate and sends you a bill. That would incentivize people to keep their tags paid up. This is basically how it works with metro card systems like the DC Smartrip cards for decades. You load a balance on a card, any card, and to use the metro, you scan it, if it's valid, it lets you in, but it's not tied in any way to your identity. You can give the card to somebody else or whatever and it will work the same for anyone.

How would one dispute what they believe to unjustified deductions from their token? If I'm forced to use a system which by design does not allow me to hold anyone accountable for the bill I (in effect) receive, I'm going to have a problem with that.

 

[JeffKeryk]

I pay a road use fee with the annual registration. I think it is $300, but don't quote me on that. I bet I pay more road use fee per mile than 95% of the ICE vehicles unless they drive A LOT!

 

[slacktide_bitog]

EV "gas stations" should charge by the kwh at a rate that is the same as the gasoline tax by the gallon.

Is the EV zero emission environmental impact more than offset by the gas tax not collected?

 

[CarLuver]

i live in a state with one of the highest gas tax in the nation. They told us to drive EV to save on pollution etc. WE have a lot of EV here, and then they realized that EV cut into the gas tax so they need to raise the gas tax to compensate. So its a constant circle .

No matter how they will tax the EV to compensate, they will not lower the gas tax. The more they get , the more they will spend . they will never have enough taxes I have no faith in my state gov doing the right thing

 

[Kestas]

There are pros and cons to all ideas. One has to take into account the administrative cost to these plans as well as how difficult or easy it may be for owners to circumvent their responsibility, and the fairness in each plan. IMO the best plan would be to pay a yearly tax.

 

[ripcord]

There are pros and cons to all ideas. One has to take into account the administrative cost to these plans as well as how difficult or easy it may be for owners to circumvent their responsibility, and the fairness in each plan. IMO the best plan would be to pay a yearly tax.

I agree. It's always best when the person paying has to cut a check so they know what they are paying for what they get.

 

[Kestas]

Is the EV zero emission environmental impact more than offset by the gas tax not collected?

It's not the emission requirement being satisfied by the taxes, but instead the monies are for wear and tear of the infrastructure. Theoretically, you could have every vehicle on the road with zero environmental impact, yet the roads would need money for maintenance.

 

[UncleDave]

For non commercial vehicles - If we as a society wont accept monitoring at any level then I'd like to see a weight based fee.

This way each person bears the cost of their relative wear on roads.

 

[FlyingVan]

In my state I pay $100 extra a year for my Prius because it is a hybrid, and I would pay $200 extra if it was full electric.

Not fair. A gas car that gets 40mpg needs to drive about 30k miles to pay $200 in fuel taxes. Average is what? 15k miles a year?

 

[ecotourist]

Tesla owner here. I think all vehicles including EVs should be charged a fee proportional to their use of the roads (meaning mileage and weight).

ICE vehicles pay something approximating that through annual license fees and fuel taxes. The fairest way to do that for EVs would be to collect information on mileage at the annual license renewal and use a chart or formula to calculate the fee for that year. Don't drive much, don't pay much.

The second fairest way would be with a toll tax where every vehicle is weighed as it goes up to the toll booth. I think people might drive less which would be an added benefit of the toll tax system. The problem with this system is that the location of toll booths would automatically lead to some (and possibly a considerable) degree of unfairness.

 

[JeffKeryk]

There are pros and cons to all ideas. One has to take into account the administrative cost to these plans as well as how difficult or easy it may be for owners to circumvent their responsibility, and the fairness in each plan. IMO the best plan would be to pay a yearly tax.

IMO, that seems very general; a yearly tax based on what?
Gas is charged by consumption. While many would cite privacy, our M3P is very connected; one would have to believe mileage could be easily reported. Add to that vehicle weight...

I agree administration overhead is costly, but a software based solution would go a long way.

 

[AZjeff]

Use tax is the fairest. Any flat yearly fee penalizes low mile drivers, ICE or EV. One would think there would be a way to log and report miles driven only but not track the vehicle.

 

[UncleDave]

Use tax is the fairest. Any flat yearly fee penalizes low mile drivers, ICE or EV. One would think there would be a way to log and report miles driven only but not track the vehicle.

A use tax without a weight index doesn't penalize the most damaging choices and makes miles on a motorcycle the equivalent of miles in a 9000LB Silverado EV.

 

[JeffKeryk]

A use tax without a weight index doesn't penalize the most damaging choices and makes miles on a motorcycle the equivalent of miles in a 9000LB Silverado EV.

Well, my friend's Harleys ain't exactly light...