As EV Uptake Grows, States are Scrambling to Replace Taxes from Gasoline

Several states in America are scrambling to replace gasoline taxes as more and more of their residents replace their internal combustion engine (ICE) vehicles with electric vehicles. This has resulted in situations where states pass levies or taxes on people who purchase battery electric vehicles (BEVs) that some stakeholders referred to as penalties for purchasing an EV. Ironically, many of these states offered their residents EV subsidies before deciding to slap them with a tax for EV ownership.

Those who support these electric vehicle taxes say they are needed to replace the gasoline taxes states would use to maintain their roads. With electric vehicle adoption rising across the country, several states have seen a notable fall in the revenue they used to earn from petrol and diesel taxes. These gasoline taxes could eventually become obsolete as America pursues total electrification over the next couple of decades.

Pennsylvania, for instance, charges the second-highest tax on gasoline in the U.S., meaning the state misses out on significant revenue every time an EV driver skips a gas station to refill their vehicle at a public charging station. Fearing a future where Pennsylvania derives little to no tax revenue from its fleet of vehicles, state lawmakers overwhelmingly approved a measure to impose an electric vehicle fee.

According to the chair of the House Transportation Committee and Democratic state Rep. Ed Neilson, the electric vehicle levy would ensure that EVs ‘pay their fair share.’ At the moment, Neilson says, non-electric vehicle drivers are paying for electric vehicle drivers to use the roads. Once the $250 yearly electric vehicle fee takes effect, Pennsylvania will have one of the highest EV fees in the U.S.

At least 36 states have adopted similar fees on BEVs and hybrid electric cars to make up for the revenue gap caused by falling gasoline taxes, with some rolling back additional EV-related incentives and others reworking their policies to make electric vehicle owners pay higher registration fees. In most cases, both Democratic and Republican lawmakers have offered their support for these fees even though they increase the cost of EV ownership to help bridge budgetary shortfalls.

After compiling gasoline tax data from all states, PEW Charitable Trusts found that the gasoline tax revenue in some states has fallen even lower than the levels seen during Bill Clinton and even George W. Bush administrations. With the tax acting as America’s transport funding backbone for the past several decades, states will now have to figure out alternative models of funding to ensure they have enough tax revenue to maintain their roads and keep them running as effectively as possible.

EV makers, such as Tesla Inc. (NASDAQ: TSLA), now have to contend with these headwinds presented by local and state government tax policies which will in most cases be perceived as inflating the cost of owning an EV, and many buyers are likely to hesitate to make the switch due to these added costs.

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