As More Electric Vehicles Hit Roads, States Look to Replace the Gas Tax

State lawmakers have long known the day was coming when they would have to figure out a way to tax electric vehicle users to maintain their roads. Still reliant on the gas tax, states are seeing those revenues shrink as more and more people get behind the wheel of an electric vehicle.

Now, with the auto industry’s decision to accelerate its production of electric cars in the coming years, that day may be close at hand. Long-studied ideas such as raising registration fees for EVs, taxing drivers for the miles they drive—instead of the gas they buy—and imposing fuel taxes on electricity sold at commercial chargers are getting a renewed look.

“We’re in a no man’s land. Nobody [in Georgia] has done this. Everybody’s talked about it, but nobody’s actually put a bill on paper,” said Georgia state Rep. Rick Jasperse, who hopes to pass an excise tax on kilowatt hours at commercial EV charging stations this year.

The Georgia proposal comes after Jasperse co-chaired a committee that looked at ways lawmakers could smooth the transition to electric vehicles. Georgia has tried to position itself as the center of the emerging industry, giving electric carmaker Rivian a “mega tax credit” to build a $5 billion plant there this time last year.

But it is a growing concern in state capitols around the country, from Oregon, which has been exploring the idea of mileage-based fees for two decades, to Wyoming, where a group of lawmakers garnered national attention for introducing tongue-in-cheek legislation to ban electric vehicles completely.

Funding Gaps

More EVs on the road is adding to funding strains in places like Michigan, which has struggled to find enough state and local revenue to keep their roads in good shape.

Michigan is one of at least 31 states that impose additional registration fees for owners of electric vehicles, according to the National Conference of State Legislatures. But advocates there say it isn’t enough.

A study commissioned by the County Road Association of Michigan and other groups found that owners of electric vehicles paid 70% to 80% in state and federal taxes and fees compared to what owners of gas-powered vehicles paid. Even so, researchers estimated that from 2019 to 2021, Michigan drivers paid $50 million less toward road funding because drivers switched to electric vehicles.

Those shortfalls are expected to get even bigger as electric vehicles become more popular. By 2030, the annual gap from Michigan drivers could reach nearly $67 million, or the amount it would cost to resurface 840 miles of road, said Denise Donohue, the CEO of the County Road Association of Michigan.

The funding gap isn’t all in state revenues. Two-thirds of that deficit would be lost federal revenues. Michigan, like other states, relies heavily on the federal government for transportation funding. Still, Donohue said, “electric vehicles are another headwind that is undermining the money coming in here.”

Counties own 75% of the road network in Michigan and have struggled to keep up with road maintenance. Gov. Gretchen Whitmer has promised to “fix the damn roads” throughout her tenure, but Republicans who controlled the legislature in her first term blocked her proposals for a higher gas tax. Whitmer instead used bond money to improve state roads, but that can’t be used for local streets. 

Busier roads that are eligible for federal money fare better, but Donohue says that less than half of other county-owned roads are in good condition.

“Our goal for them is 60% in fair condition, which seems realistic. But our current status is 46%,” she said. 

Donohue said her group supports the transition to electric vehicles—a major part of Michigan’s economic future—but warned that time is short for lawmakers to find a new way for funding road upkeep. More than half of new vehicles are expected to be electric by 2030, and seven years is not a long time for lawmakers to coalesce behind a new approach and have state agencies ready to administer it, she said.

“But we don’t need another study about how big the problem is. It’s staggering enough by 2030. We have the chance to move quickly and get some kind of pilot going,” she said.

Alternatives to the Gas Tax

Lawmakers in other states are trying to get ahead of the problem.

Jasperse, the Georgia lawmaker, is pushing for a tax on public chargers, while keeping in place the higher EV registration fee to cover the expenses of drivers who charge their vehicles at home. Under his proposal, the state agriculture department, which already inspects motor fuel pumps, would oversee public chargers and work with the revenue department to collect the new taxes.

“Georgia has a reputation for great roads, road maintenance, and for bridge repair and very continual bridge updating. That’s not free. We just want everybody using the road to pay their fair share,” he said.

Kentucky officials are also banking on a big uptake of electric vehicles, with Ford building two multibillion-dollar battery factories in the state and other competitors setting up shop there.

Last year, Kentucky lawmakers enacted a charge of 3 cents per kilowatt hour for public charging stations, which will go into effect in 2024.

“That’s the first step towards modernization in Kentucky, to try to address the loss of gas tax revenues as electric and hybrid become more common,” said Chad LaRue, the executive director of the Kentucky Association of Highway Contractors. “It’s not only to offset some of the losses from the gas tax, but it also allows you to continue to collect from both in-state and out-of-state users of your facility.”

While the rate is roughly the equivalent of what drivers would pay for gas-powered cars, there’s still an open question about how often people will opt to charge their vehicles at home—where they wouldn’t pay the surcharge—versus at public charging stations—where they would.

Meanwhile, there are also questions about the effectiveness of Kentucky’s gas tax structure. It depends on the wholesale price of gasoline, but increases are capped at 10% a year. With gas prices fluctuating so much in the last decade and vehicles becoming more fuel-efficient, the motor fuel tax brings in $110 million less per year than it did in 2014, LaRue noted.

Ultimately, he predicted, Kentucky and other states would move to a mileage-based fee system. Dozens of states—many with the help of the federal government—are now experimenting with mileage taxes, but only a handful of them have collected money from drivers in those pilot programs. 

LaRue says the adoption of mileage taxes is a way off because of privacy concerns and technical questions. “I like to tell people it’s going to be an evolutionary process, not a revolutionary process,” he said.

In fact, in Pennsylvania, which has long taxed electricity used to fuel vehicles, there’s a push to replace that system with a mileage fee for electric and plug-in hybrid vehicles. Pennsylvania includes electricity in its alternative fuels tax, which many states use to cover options like propane and natural gas.

But Pennsylvania state Rep. Rich Irvin sent colleagues a memo last month asking them to cosponsor a five-year pilot. Under the proposal, electric vehicle owners would either pay a higher annual fee or pay based on the number of miles they drove.

The existing tax, Irvin wrote, “is notoriously cumbersome, convoluted and difficult to enforce. It’s time to find a better, more effective and easier solution.” A mileage fee, he said, “is one that is fair, reliable and better equips our transportation agencies to plan for road maintenance.”