To tax or not to tax hybrid cars

McLEAN, Va. — John Kraus has a new Toyota Prius V hybrid wagon that he’s very fond of. He’s also got a new Virginia tax on it that he’s none too happy about.

Virginia Gov. Bob McDonnell, a Republican, signed a new law last month that lowers the gas tax for everyone, but slaps a $64-per-year fee on hybrid and electric car owners to help make up for what those drivers aren’t paying at the pump.

“What’s not to like about getting better than 40 miles per gallon of gas?” asks Kraus. “Oh, wait — less revenue for Virginia. Well, excuse us for helping to reduce the nation’s oil dependency.”

Legislation that would levy a fee or tax on greener wheels is now pending in Texas, Massachusetts, New Jersey and Arizona. A similar bill died in committee in Idaho. Washington state added a $100 registration fee in February for owners of all-electric vehicles.

STORY: N.J. looks at electric car fee

To some, it seems like crazy, conflicting policymaking. After all, even President Obama is telling consumers to use less gas and buy hybrid and electric vehicles. But policymakers argue it only makes sense because gas taxes pay for highways — and battery-powered vehicles use the roads, too.

“The good news is they use less gas,” Virginia Transportation Secretary Sean Connaughton says of hybrid and electric vehicles. “The bad news is they have the same impact as a regular gasoline-powered car, yet provide little or no money for highway maintenance.”

It’s a conundrum facing state legislatures across the U.S.: How to make up for the decline in gas tax revenue — which is in part due to the increase in sales of hybrid and electric vehicles — without unduly penalizing those who are doing their part for the environment.

Hybrid and electric vehicle sales are expected to increase by about 17% to 550,000 vehicles from 2012 through 2016, according to the automotive forecasting company ALG. But they made up only 3of new vehicle sales last year, so are hardly the only gas tax culprit.

State and federal gas tax revenues are also down because:

• Federal and most state fuel taxes haven’t been increased in years — decades in some cases — so inflation means those dollars have far less purchasing power today.

• Gas taxes are typically a flat per-gallon amount that doesn’t increase as the price of gasoline does.

• People have been driving less since the recession.

• Cars overall are far more fuel-efficient.

Massachusetts State Sen. Richard Moore, a Democrat who sponsored that state’s pending legislation, says he proposed a sales tax exemption for electric vehicles and their chargers, but wants these vehicles to be charged for miles traveled, too.

“We need to encourage purchase of alternative-fuel vehicles like electric and hybrid to help diversify the sources that power our transportation … (and) reduce vehicle emissions for the benefit of the environment,” Moore said in an e-mailed statement.

But a miles-driven tax is needed to pay for road and bridge maintenance, he says.

The Chesapeake Climate Action Network believes politics were at work when Virginia added the tax on hybrid and electric vehicles while lowering the gas tax.

“We don’t normally work on transportation, but this was such a strong, clear attack on solutions to climate change that we thought we had to do something,” says Beth Kemler, the group’s Virginia state director.

In Indiana, Republican Rep. Randy Frye had a hybrid/electric vehicle tax amendment removed from a transportation bill so a group of legislators could study the issue this summer and get advice from experts on how the tax should be set.

“We don’t want to overtax or undertax,” says Frye. Hybrid and electric vehicles “do use the roads, so they need to pay their fair share.”

Frye, a fan of compressed natural gas, is pushing for broader availability of CNG while also calling for a gas tax increase on the fuel because it costs so much less than regular gas.

Virginia tried a fairly novel approach to address the issue, which Connaughton says represented a complete overhaul of how the state collects revenue for transportation. And he says it was long overdue.

Most gas taxes are based on vehicle fuel economy when cars averaged about 10 miles per gallon. After calculating that the typical internal combustion-powered car contributes about $100 a year in gas taxes, McDonnell decided to raise the state sales tax from 5% to 5.3%, lower the overall gas tax rate from 17.5 to 10.5 cents a gallon and add the hybrid/electric tax. It was proposed at $100, but lowered to $64.

Kraus, however, questions the Virginia move because he says it’s a “flat tax on investment in energy-efficient technology.”

“Gas taxes do more than just pay for roads,” he says. “Gas taxes also discourage gas consumption, which means less traffic, more use of public transit, and less demand for new roads.”

Connaughton says Virginia had no choice, and soon the rest of the country will have to follow with innovative ways to fund highways. After all, the American Association of State Highway and Transportation Officials projects there will be an average gap of $14.7 billion a year in the money needed by the federal Highway Trust Fund and the money coming into it from 2015 through 2023.

The trust fund, which pays for transit, highway construction and maintenance and safety, gets 89% of its revenue from the federal fuel tax.

“There is obviously the concern this will discourage people from buying these types of vehicles, however the fee is not excessive and it really is the bare minimum to pay for the highways they use,” Connaughton says of Virginia’s fee. “It is a necessary evil.”