Losing Revenue From Hybrids Prompts States to Hit Owners

Opponents say taxing the vehicles contradicts government promotion of renewable energy, and the hybrid-electric share of the auto market is too little to cut into taxes. TPhotographer: Justin Sullivan/Getty Images Close

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Opponents say taxing the vehicles contradicts government promotion of renewable energy, and the hybrid-electric share of the auto market is too little to cut into taxes. TPhotographer: Justin Sullivan/Getty Images

Hybrid and electric cars are sparing the environment. Critics say they’re hurting the roads.

The popularity of these fuel-efficient vehicles is being blamed for a drop in gasoline taxes that pay for local highway and bridge maintenance, with three states enacting rules to make up the losses with added fees on the cars and at least five others weighing similar legislation.

“The intent is that people who use the roads pay for them,” said Arizona state Senator Steve Farley, a Democrat from Tucson who wrote a bill to tax electric cars. “Just because we have somebody who is getting out of doing it because they have an alternative form of fuel, that doesn’t mean they shouldn’t pay for the roads.”

State and local gas-tax revenue has declined every year since 2004, falling 7 percent to $37.9 billion in 2010, according to inflation-adjusted data from the Institute on Taxation and Economic Policy, a Washington-based nonpartisan research group.

U.S. sales of electric and hybrid cars soared to 443,985 last year from just 22,407 in 2002, according to WardsAuto in Southfield, Michigan, which tracks industry performance. Electric, hybrid and plug-in hybrid auto sales jumped almost 60 percent in 2012 from the preceding year, representing 3.3 percent of the 14.4 million cars sold, the data showed.

Opponents say taxing the vehicles contradicts government promotion of renewable energy, and the hybrid-electric share of the auto market is too little to cut into taxes. The federal government offers a tax credit from $2,500 to $7,500 on the purchase of a new plug-in electric car based on the traction battery capacity and the gross weight rating.

‘At Odds’

Boosting taxes “for people who want to use less gas is at odds with policies that are trying to make it easier for people who want to adopt clean and efficient technologies,” Genevieve Cullen, vice president of the Electric Drive Transportation Association, a Washington-based industry group, said in a telephone interview.

Fuel taxes provide close to 40 percent of state revenue for highways, according to a 2012 report by the Denver-based National Conference of State Legislatures.

“Yet these revenues have not kept pace with needs, partly due to changing travel patterns and fewer miles driven nationwide,” the report said. “Improvements in vehicle fuel efficiency and growing use of alternative fuels also present serious challenges.”

More Efficient

Tax collections have declined relative to the amount of driving as cars become more efficient, said John DeCicco, a research professor specializing in transportation energy use at the University of Michigan Energy Institute in Ann Arbor.

“The larger issue is not electric cars as regular cars are getting more efficient,” he said in an interview. “More miles per gallon means less gas tax per mile. That’s the crux of the problem.”

In Washington state, electric-car owners this year began paying a $100 annual fee. Virginia in April approved a $64 annual fee on hybrid and electric cars.

In New Jersey, Senator Jim Whelan, a Democrat from Atlantic City, has proposed a $50 annual fee on electric and compressed natural-gas cars that would be deposited into a state fund for road and bridge maintenance.

Free Ride

“Those of us who drive gas-powered vehicles, which is 98 percent of the people in our state, are contributing to the transportation trust fund,” Whelan said at a May 20 hearing. “The 2 percent who are driving electric cars or compressed natural-gas cars drive the same roads and bridges that we do -- they currently contribute zero. They literally get a free ride.”

The state offers a 10 percent discount on off-peak New Jersey Turnpike and Garden State Parkway tolls through E-Z Pass for cars that get at least 45 miles per gallon (19 kilometers per liter).

In Arizona, Farley’s measure, which has stalled, would impose a tax on electric cars of 1 cent per mile driven on the state’s highways, amounting to about $120 annually per car, he said. Texas lawmakers considered a similar bill this year.

In Indiana, lawmakers created a committee to study a local road impact fee on electric and hybrid cars to be paid at registration.

North Carolina’s Senate on May 23 approved a budget plan that includes a $100 fee for electric cars and $50 for hybrid cars, said Amy Auth, deputy chief of staff for Phil Berger, Senate president pro tempore. The plan has gone to the House for review, she said.

Unfair Tax

Tom Stricker, vice president of technical and regulatory affairs at Toyota Motor North America (0335879D), said it’s unfair to single out hybrids for an additional tax. Toyota, the world’s largest carmaker, almost doubled its sales of hybrids last year to 327,413, from 178,587 in 2011, according to company statements.

“A compact gasoline car may consume less fuel and pay less gasoline tax than a hybrid SUV, but only the hybrid SUV would be subject to an additional tax,” Stricker said in an e-mailed response to questions.

The approach is “wholly inconsistent” with federal and state government efforts to spur technology innovation, improve fuel economy and reduce greenhouse-gas emissions, he said.

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net.

To contact the editor responsible for this story: Stephen Merelman in New York at smerelman@bloomberg.net. TSLA US <EQUITY>

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