Katerina Swanson
Electric vehicles (EVs) are exempt from fuel tax, but this has led to states and countries introducing other fees and taxes to compensate for the loss of revenue. In the US, the federal government has offered tax credits for EV buyers, but these are being phased out. Instead, states are introducing their own fees, which vary widely, from $50 to $200 per year. Some states are also considering a use tax based on the number of miles driven. In the UK, the government has introduced a tax on electricity used to charge EVs. These changes reflect the challenges governments face in keeping up with technological changes in the auto industry and the need to maintain road infrastructure.
| Characteristics | Values |
|---|---|
| Electric vehicle owners don't pay fuel tax | Yes |
| States charging extra fees to make up for declining fuel tax revenue | Yes |
| Range of extra fees charged by states | $50 to $200 per year |
| States with highest fees | Texas, California, Colorado, Illinois, Vermont, Ohio, and others |
| Fee amounts in some states | Michigan: $135; Minnesota: $75; Mississippi: $150; Missouri: $75; Nebraska: $75; North Carolina: $130; Oregon: $110; South Carolina: $60; Tennessee: $100; Utah: $60 |
| Annual registration fee for all cars in Illinois | $158 |
| Annual gas tax for vehicles with 24 mpg and 15,000 annual miles in Illinois | $237 |
| Federal tax credit for new electric vehicles | Up to $7,500 |
| Federal tax credit for pre-owned vehicles | Up to $4,000 |
| Minimum federal tax credit | $2,500 |
| Federal tax credit for vehicles with minimum 7 kWh battery capacity | $3,751 |
| Federal tax credit for vehicles meeting critical minerals requirement | $3,750 |
| Federal tax credit for vehicles meeting battery components requirement | $3,750 |
| Excise tax and surtax fee for EV charger owners and lessees | $0.03 per kilowatt-hour |
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What You'll Learn
- Electric vehicle owners don't pay gas taxes, so some states charge them higher registration fees
- Owners of new, clean electric vehicles may qualify for a federal tax credit of up to $7,500
- Electric vehicle charger owners and lessees must pay a combined excise tax and surtax fee of $0.03 per kilowatt-hour of electricity used to charge EVs
- Some states charge extra fees to own an electric vehicle, ranging from $50 to $200 per year
- Some states are considering a use tax based on the number of miles a vehicle is driven
Electric vehicle owners don't pay gas taxes, so some states charge them higher registration fees
Electric vehicles (EVs) are powered by electricity and do not require gasoline or diesel fuel, which means they are exempt from fuel taxes. However, some states have introduced higher registration fees for EV owners to compensate for the loss of fuel tax revenue. This is because the upkeep of roads and infrastructure is typically funded by fuel taxes, and with more people adopting EVs, there is less money available for these projects.
In 2019, Illinois became the 18th state to implement extra annual fees for EV owners, joining states like California, Colorado, and Texas. The fees vary from state to state, ranging from as low as $50 to as high as $200 per year. For example, in Michigan, there is a $135 annual fee for non-hybrid electric vehicles weighing less than 8,000 pounds, while in California, there is a $100 annual fee for zero-emissions vehicles. These fees are often indexed to the state gas tax and may increase over time.
While environmentalists and consumer groups agree that EV owners should contribute to road maintenance and construction, they worry that these fees could be set at punitive levels. This concern is particularly relevant in states with Republican-controlled legislatures, where there is a risk of excessive fee increases to target liberal EV owners. Additionally, some states have proposed a "use tax" based on the number of miles driven, but privacy and fairness issues have prevented its implementation.
To offset the higher registration fees, EV owners can take advantage of federal tax credits. The Inflation Reduction Act of 2022 amended the Qualified Plug-in Electric Drive Motor Vehicle Credit, now known as the Clean Vehicle Credit. This credit allows eligible EV buyers to receive up to $7,500 in tax credits, depending on factors such as the vehicle's MSRP, battery capacity, and the buyer's income. These credits can significantly reduce the upfront cost of purchasing an EV, making them more accessible to consumers.
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Owners of new, clean electric vehicles may qualify for a federal tax credit of up to $7,500
Electric vehicles (EVs) are not subject to fuel taxes, but their owners may be charged additional fees by some states. These fees are intended to compensate for the loss of fuel tax revenue, which is used to maintain and construct roads. Environmentalists and consumer groups agree that EV owners should contribute to road maintenance and construction, but they worry that the fees could be set at punitive levels by Republicans in Congress.
To be eligible for the tax credit, the vehicle must be new, have a battery capacity of at least 7 kilowatt-hours, be used for propulsion, have a gross vehicle weight rating of up to 14,000 pounds, and meet specified emission standards. The vehicle must also meet new critical mineral and battery component requirements. The seller of the vehicle must provide information about its qualifications and register it with the IRS.
Starting January 1, 2024, buyers can choose to transfer their credit to the dealer to reduce the upfront purchase price of the vehicle. The dealer must submit information to the IRS to determine the vehicle's eligibility and the amount of the credit at the point of sale. Buyers should obtain a copy of the IRS's confirmation of the dealer's submission to claim the credit.
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Electric vehicle charger owners and lessees must pay a combined excise tax and surtax fee of $0.03 per kilowatt-hour of electricity used to charge EVs
With the growing popularity of electric vehicles, there is a shift in focus towards kilowatt-hour (kWh) based pricing, which is similar to the conventional model of measuring fuel by the gallon. This pricing model is based on the actual energy consumption during a charging session. The kWh-based pricing offers several benefits, such as precise pricing and the ability for EV owners to monitor their charging sessions in real-time, allowing them to adjust their charging habits to save costs.
However, this shift also brings about policy changes. Initially, EV advocates promoted legislation to enable businesses to charge EV drivers for electricity usage. Now, with the introduction of kWh-based pricing, charging station hosts can directly pass on their kWh usage costs to EV drivers. This transition is particularly important for hosts who want to recover their energy costs, as the previous duration-based rates did not account for a vehicle's charging efficiency.
In line with these developments, some states have started implementing a tax on EV charging. For example, Montana introduced a $0.03 kWh tax in May 2023 for charging stations rated at 25kW or higher. Oklahoma will also introduce a similar $0.03 kWh tax in January 2024, exempting chargers with less than 50kW capacity. This means that electric vehicle charger owners and lessees must pay a combined excise tax and surtax fee of $0.03 per kilowatt-hour of electricity used to charge EVs.
It is important to note that these taxes are typically the responsibility of charging station operators, who collect the tax and remit it to the state on a monthly basis. EV drivers charging at home are generally not liable for these taxes. While these taxes may be passed on to consumers, they are usually included in the kWh pricing displayed on the charger or network app, similar to how gas taxes are handled.
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Some states charge extra fees to own an electric vehicle, ranging from $50 to $200 per year
Electric vehicles (EVs) are exempt from fuel taxes, but their owners are subject to other fees. Many states are charging these fees to compensate for the loss of fuel tax revenue, which is used to fund road maintenance and construction. Environmentalists and consumer groups agree that EV owners should contribute to these costs, but they worry that the fees will be set too high, acting as a punishment for EV owners.
Indeed, some states have introduced punitive fees. For example, in Texas and other states, EV owners are charged extremely high fees, according to Chris Harto, a senior policy analyst at Consumer Reports. In Illinois, the "EV tax" was initially set at a high rate but was later reduced to a more reasonable $100 on top of the increased annual $158 registration fee for all cars. Illinois joined 17 other states that charge extra annual fees to EV owners, including California, Colorado, and Vermont.
The extra fees for EV ownership vary across states, ranging from a low of $50 per year to a high of $200. For example, in Michigan, the fee is $135 for non-hybrid electric vehicles weighing less than 8,000 pounds, and $235 for those weighing more. Minnesota charges $75, Mississippi charges $150, and Missouri charges $75. These fees are typically indexed to the state gas tax and would increase if the gas tax rises.
Some states are considering a "use tax" based on the number of miles driven, similar to programs used by auto insurance companies to reward drivers who maintain good driving habits. However, privacy and fairness issues have prevented the widespread implementation of such programs.
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Some states are considering a use tax based on the number of miles a vehicle is driven
Electric vehicles (EVs) are exempt from fuel taxes because they do not use gasoline. However, this has led to a decline in revenue from fuel taxes for governments. As a result, many states have started charging EV owners extra fees to compensate for this loss in revenue. These fees vary from state to state and can be as low as $50 per year to as high as $200. For instance, in Michigan, EV owners have to pay an annual fee of $135 for non-hybrid electric vehicles weighing less than 8,000 pounds, and $235 for those weighing more. In California, there is a $100 annual fee for zero-emissions vehicles, while in Illinois, EV owners have to pay a $100 fee on top of the increased annual $158 registration fee for all cars.
While environmentalists and consumer groups agree that EV owners should contribute to road maintenance and construction costs, they worry that the fees will be set at extremely high levels to punish EV owners, who tend to be liberals. This has already happened in Texas and other states, according to a senior policy analyst at Consumer Reports. Nevertheless, it is clear that states are attempting to adapt to the technological shift in the automotive industry, and the debate around EV fees and taxes will likely continue as EV adoption becomes more widespread.
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Frequently asked questions
Electric car owners do not pay fuel tax. However, they may be subject to other fees and taxes, such as registration fees and EV charger taxes.
Registration fees for electric cars vary by state. For example, in Michigan, the annual fee for non-hybrid electric vehicles weighing less than 8,000 pounds is $135, while those weighing more than 8,000 pounds are charged $235. In California, there is a $100 annual fee for zero-emissions vehicles.
Yes, there are federal tax credits available for the purchase of electric vehicles. The tax credit can be up to $7,500, depending on various factors such as the vehicle's MSRP, battery capacity, and the buyer's income.
