Electric Vehicles Are Punishingly Overtaxed in Virginia

by Alleyn Harned

In an October 15th post, James Bacon asked the question: How should we tax electric vehicles?

Bacon’s bottom line is reasonable, and it is worth noting that electric vehicles (EVs) and clean fuels already pay more than their fair share in Virginia with equivalent or excessive taxes, according to Consumer Reports. It is easy to agree with Bacon’s ideas of user fees and externalities, where EVs also pay, and where pollution externalities are integrated into state fee structures.

However, Virginia has not ignored the transportation revenue potential of EVs and reaps a high tax on these vehicles. Since the McDonnell administration, electric vehicles been assessed a punishing $64 a year fee in order to gather an approximate amount of revenue equivalent to somewhat more than traditional vehicles pay in gas tax. This fee has been used by the oil industry to justify high fees nationwide.

A recent Consumer Reports study in September showed that now in many states, electric-car fees often cost far more than what owners of gasoline-powered cars pay in gas tax. Virginia’s fee is 5% higher, even though EVs and clean fuel vehicles have great benefit to the Commonwealth through emissions reduction.

I suggest we should tax electric vehicles no greater than gasoline and diesel vehicles. Other financing mechanisms are great, but punishing cleaner vehicles fueled by domestic energy creates an unbalanced playing field favoring high cost oil.

Bacon suggests calculating and adjusting downward for cleaner air for both pollution and direct CO2 emissions from gasoline combustion and indirect emissions via the electric grid, any such calculations would have to be revisited periodically to reflect the greening of the grid. By this measure, the carbon fee today should be 60% higher on gasoline than on grid electricity, though further discounts could be tied to time of use charging, bringing electricity to zero emissions or negative emissions with GHG sequestration sources.

According to the U.S. Department of Energy, electric vehicles produce very low emissions in Virginia if you compare grid fuel to gasoline emissions.

Electric vehicles are cleaner for the air, with significant health benefits beyond the CO2 reductions. They generate no tailpipe pollution when operating, and pollution from electricity generation can be mitigated with improvements to the grid, timing of charging, and lower cost renewables like Dominion Energy’s announced 2.6-gigawatt wind project which can charge these vehicles at night. Virginia for the most part is not coal intensive, with peak coal back in 1990’s. We are now using coal for less than 10% of our electric energy mix. Renewables like solar and wind are also now lower in cost than coal.

Beyond air quality, I suggest the Commonwealth consider reducing these punishing fees and incentivizing clean fuel vehicles like EVs because clean fuel vehicles are good for Virginia’s energy, economic, and environmental security.

Virginia produces nearly no oil in the state, but we spend around $33 million a day on 13 million gallons of imported gasoline and diesel, an enormous shifting of wealth from Virginians to oil-producers out of the state and in other countries. We produce many things that can produce electricity. This importation of highly polluting oil energy is an enormous drain on Virginia’s economy.

The United States just sent 1,000 troops, likely including Virginians, to Saudi Arabia to help defend Saudi oil. We maintain a fleet in the Strait of Hormuz to facilitate oil shipments. This international military investment is an externality that could be tracked and budgeted into the federal or state motorfuels tax of billions of our dollars.

Electric vehicles are affordable for all people today. Beyond Teslas, most EVs cost well under the $39,000 average price for a new car – with LEAF and Bolt available in VA under $30,000, and the Tesla 3 landing at $39,000 – the average price for a new car. Virginia-headquartered Volkswagen and Audi are planning a future with heavy electric vehicle investments. Ford and Shell just announced major partnership in advance of Ford’s new electric vehicles. Good used EVs are available for around $12,000. You can find new Nissan LEAFs posted for $18,900 and Prius Primes for $22,000 in Virginia on www.electrifyyourrideva.org .

Because electricity is low cost (about $1 per gallon equivalent) and vehicles can travel many miles on each $0.12 kilowatt of Virginia-made clean energy, driving electric pencils out to save $10k over 10 years in fuel costs. Fueleconomy.gov lets you see how much it would take to get each EV to 25 miles. Between fuel and initial cost in Virginia, a great EV total cost of ownership over 10 years is half that of the average new vehicle in the U.S.

Bacon is right to raise the discussion on user fees (miles) and externalities (pollution). The comments raised about a Vehicle Miles Traveled fees are sound and worth reviewing. Other states like Washington are phasing in a VMT over 10 years. EVs, which produce zero tailpipe emissions and use cleaner local energy, currently do pay greater than their fare share today in support of Virginia’s roads.

Alleyn Harned is director of Virginia Clean Cities.

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14 responses to “Electric Vehicles Are Punishingly Overtaxed in Virginia”

  1. LarrytheG Avatar

    If take a car that gets 20 mpg and travels 20,000 miles a year – it needs 1000 gallons which is taxed at 17 cents a gallon for the State and another 17 cents a gallon for the Feds.

    That’s about $334 a year.

    If you get an electric car to commute every day in and you put 40,000 miles on it – if it used gasoline – you’d be paying close to $700 a year.

    where am I going wrong on this calculation?

    1. Steve Haner Avatar
      Steve Haner

      Last time I was crawling up 95 I doubt that was 20 mpg 🙂 And the combined tax is more like 40 cents per gallon (22 state, 18.5 fed).

  2. Anonymous3444 Avatar

    “We produce many things that can produce electricity.”

    Really? Other than uranium, what would those be? Coal? Fracked gas? Test installations of wind turbines at extraordinary costs?

    Electric cars are nice in some ways (as long as you carefully exclude environmental “externalities” like the pollution costs of building them or handling them in the waste stream, as our author here has done), but the idea that they are mainstream transportation isn’t very plausible. If they were, the federal government wouldn’t need to offer a giant tax credit for each one to keep that industry going.

  3. Steve Haner Avatar
    Steve Haner

    Punishing? Even if you use the car very little, I doubt any EV owner considers that punishing. Depending on the mileage it could be higher or lower than the equivalent state and federal gas tax. And as a fixed charge, it provides no disincentive to continued driving.

    Everyone always forgets there are consumption taxes on electricity, as well, both state and local. These are based on usage, so adding an EV to your household raises those, too. I have no idea how many kWh an EV adds to your monthly bill, but again, it will depend on usage. My last Dominion bill showed more than a buck for consumption taxes (based on my low usage) and the $4 local utility tax, which is fixed. I can easily imagine an EV adding another $6-10 per year on those taxes.

    The discussion also cannot ignore the major income tax breaks offered on EV’s. Still available, as far as I know. No, not punishing, not at all. Please. Oh, and don’t they still get preferential treatment in the HOV lanes?

    1. Fed Rebates $7500 still available though Telsa and GM have sold over 200,000 plug-ins which means the tax credit is phasing out now for them.

      1. Plug-ins do indeed get free HOV in Virginia, but most of the important HOV arteries are being converted to HOT lanes. So the value of this benefit is limited, unless the Va. Dems give HOT lanes benefits to plug-ins.

        Uncle Sam has, just this month, kicked all gasoline-hybrids out of free HOV nationally. But plug-ins are still allowed.

    2. dupe

  4. OK this is what I tried to say the other day. EV advocates are opposed to paying the pump taxes that gaso vehicles pay. Calling $64 punishing is pro-EV-extremism, which I am familar with, and is very common.

    If we compare an EV to a Prius at about 45 MPG, then the EV is paying about the same amount of road taxes at $64 in Virginia. Presumably this how CR is looking at it.

    If you want to complain about high EV taxes in Virginia, you need to talk about the car tax. Can you imagine paying 5% per year of car vaule in NoVA for a $100,000 Tesla? You’d be talking somwhere in the range of $20,000 car taxes over 10-yrs, compared to MD or DC with actual discounts (tax credits) on EV’s…you’d be paying approaching $25000 more for the same vehicle in Virginia.

    1. Astute observation! If the up-front price of an EV is, say, $10,000 to $20,000 higher on average than a comparable combustion-powered vehicle, the local car tax may be the biggest tax on EVs of all!

  5. TooManyTaxes Avatar

    Who says there are no environmental rent seekers? While heavy trucks cause most of the damages to roads and bridges, each vehicle driving causes some wear and tear and benefits from road signs, striping, signal lights, snowplowing and minor maintenance. To the extent electric vehicles use the roads and bridges, they need to pay like gasoline and hybrid vehicles do.

    I thought the movement from straight gasoline taxes to a broader tax base made sense. And now we need to find a reasonable and fair way to tax all electric vehicles.

  6. LarrytheG Avatar

    Well.. I don’t think they have any additional externalities than regular cars – that’s apples to apples. And if they were powered solely by grid-supplied coal they’d be no cleaner than conventional engines – true.

    I’m a bit skeptical also about “mainstream” but when they get to a 300-400 mile range and can recharge in 15 minutes – or even 30-60 at work – they’re going to win because internal combustion engines are a pain in the rump to maintain …just oil/filter changes alone … they go away with EVs.

    1. Steve Haner Avatar
      Steve Haner

      So why are they whining? My next purchase an EV will be on the comparison list.

  7. Policy Student Avatar
    Policy Student

    I dislike user-oriented taxes. But if that’s what we are doing, I suggest we at least index the EV $64 fee for inflation.

    1) Everyone benefits from transportation infrastructure. In my view, everyone should fund this public good. Everyone eats food and food travels on roads. Everyone benefits from fire departments, and they need roads. Etc. I prefer transportation funding flow primarily through state appropriations.

    2) I do not favor a per-mile gas or EV tax; here’s why. User fees/ taxes tend to be regressive. They disproportionately affect lower income earners like the pizza deliver person or certain rural residents. Gas taxes punish electricians, parents who require “car seats” for their kids, dual-working households, and people who cannot afford to live “close in” to work and so on. People do not commute long distances for fun, they do so to feed and care for their families. 

    3) Let the market incentivize EV’s instead of the government. As the author states, EV owners save “$10k over 10 years in fuel costs.” This Virginian CANNOT afford a new $12-40K EV. Is it appropriate to reward those who can, and who also reap significant fuel savings?  I might feel different if EV sales were not booming, but they are.

    4) If we are to do user taxes, they should not favor EV drivers. I pay considerably more than $64/ year in fuel tax, and drive considerably less on Virginia roads than do my (wealthier) Tesla-owning friends.  I’ll bet Teslas wear down the road just as quickly (if not quicker) than our compact Corolla. Here’s VDOT’s budget, for anyone curious about what those roads actually cost:

  8. LarrytheG Avatar

    In Virginia fully a third of the revenues in Virginia come from the general sales tax and another third comes from the sales tax on new vehicles. Only 1/3 of the revenues come from fuel taxes. Another substancial source of money comes from the Federal Gas tax about 330 million)

    https://www.dmv.virginia.gov/webdoc/pdf/tracking_aug19.pdf see page 3

    further: there are approximately 5.9 million licensed drivers and over 7.5 million registered vehicles in Virginia.

    If you take VDOT’s annual budget of 3.3 billion and divide it by 5.9 million drivers – you get $559 per driver.

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