Why Are States Implementing Fees for Electric Vehicles?

By June 9, 2020 Blog

Today in the EV Connect Blog, we’re looking at the trend of new state fees for electric cars, and we’re also taking a closer look at electric vehicle fees by state.

It probably doesn’t make sense when you think about it at first: state governments are eager for motorists to adopt electric vehicles. It’s a critical part of the strategy to reduce conventional pollution and greenhouse gas emissions. So why impose fees on EV drivers?

To understand the reasons for these state fees for electric cars, as well as the differences in electric vehicle fees by state, first you have to look at why electric vehicle fees exist in the first place. There are many reasons, some more obvious than others.

Gasoline Taxes Fund Roads

state fees for electric cars result from lost gas taxes

We pay for roads and highways with our taxes, but have you ever thought about how exactly that works? Generally speaking, there are four main funding sources:

  • Taxes on gasoline and diesel
  • Vehicle registration fees
  • Tolls for bridges, express lanes, etc.
  • Federal funding (which is mainly funded by federal gas taxes)

In the United States, the gas tax is the backbone of our funding for roads. According to the Tax Foundation, most states raise between one-third and one-half of their funding for roads through gas taxes. At the federal level—for interstate freeways, US highways, and other federally-maintained roads—the reliance on gas taxes is even higher.

You can see the problem here already: electric cars don’t pay gas taxes. As EV motorists, we pay our fair share when it comes to vehicle registration fees and tolls. However, since we don’t pay anything in gas taxes, and since gas taxes are the major source of road funding in most states, it means we’re not paying our fair share for the roads we use.

So, the new trend of electric vehicle fees by state governments is partially a result of the need to replace lost gas tax revenues.

This Is Not an EV Problem: It’s a Tax Structure Problem

The important thing to understand is that this problem isn’t the fault of EV drivers themselves. It’s a failure of an old tax system to reflect a new reality. Electric vehicles don’t need gas — which is a good thing! But roads need funding. That’s a good thing, too, because economies cannot flourish without good public roads.

So you’re seeing several state governments attempt to fix this problem by imposing various electric vehicle fees by state. This is the single biggest reason for all these new state fees for electric cars. But it’s not the only reason.

Understanding Electric Vehicle Fees by State: California vs. Alabama

understand electric vehicle fees by stateWhat do California and Alabama have in common? Not much! Culturally, economically, and politically, they’re about as different as any two states you’ll find.

But they do have one thing in common: Both of them charge significant state fees for electric cars. According to US News & World Report, in California it’s $100 a year as of 2020. In Alabama, it’s $100 a year for plug-in hybrids and a whopping $200 a year for fully electric vehicles.

California: Dependent on Roads, With High EV Sales

To better understand electric vehicle fees by state, the first place to look is California. When it comes to roads and freeways and “car culture” in general, California is the undisputed capital. The state has an enormous number of roads to maintain, spanning just about every kind of climate the world has to offer. It’s extremely expensive, and California has strong environmental regulations, worker protections, and other laws that make it even more expensive.

At the same time, California is also the nation’s leader in electric vehicle sales: EV sales in California are nearly equal to the sales of the other 49 states put together. That’s a lot of electric vehicles!

As you can imagine, the hit to California’s road funding due to lost gasoline taxes because of new electric vehicles is pretty severe indeed. So when you’re thinking about electric vehicle fees by state, you can begin to see why California is charging EV drivers $100 a year. As far as state fees for electric cars go, this is one of the more reasonable ones.

Reasonable or not, some EV drivers will gripe. But it’s important to look at the big picture: driving an EV in California is still a money-saving proposition. California has some of the highest gas prices in the nation, and EV drivers are saving hundreds, if not thousands, of dollars a year in gasoline costs.

Alabama: Double The Fees of California

So what about Alabama? Their new state fee for electric cars is $200, double that of California. Yet they have very few electric vehicles on the roads. According to Made in Alabama, as of April 2019, there were only 115 publicly available charging stations in the entire state. So these fees, though they are individually expensive, aren’t going to raise all that much money.

When you’re looking at electric vehicle fees by state, at first blush you might think that Alabama is trying to punish electric vehicle owners for political reasons. But the real answer is more interesting. Alabama is the polar opposite from California: In Alabama, they are extremely averse to taxes. Raising taxes, no matter how badly the revenues are needed, is political poison. This inability to raise taxes seriously hampers the state’s long-term economic development, especially when it comes to innovation.

Alabama’s government realizes this, so to encourage the growth of electric vehicle ownership in the state, they created a grant program that incentivizes the installation of new EV charging stations. (You can learn more about state-by-state grants and other financial incentives for installing EV charging stations at your parking lots on our Incentives page.)

And where is the money for these grants coming from? That’s right: from the annual electric vehicle fees. By state of Alabama standards, it’s an ingenious solution. By making electric vehicle owners pay for the expansion of EV charging infrastructure, taxes don’t have to be raised, and the people paying these fees are the ones who stand to benefit from improved access to EV stations. It also scales nicely: The more EV drivers there are on the road, the more grant money there is for new EV charging stations.

So it turns out that Alabama’s state fee for electric cars isn’t so unreasonable after all.

The Bottom Line

The main take away from all this is that electric vehicle fees by state do vary, but they always have specific goals in mind. Nobody is trying to milk EV drivers for money.

The reason for these fees is because the EV market is still developing. While electric vehicles are growing in market share, and EV charging infrastructure is slowly expanding nationwide, the value proposition is still an obstacle for many motorists. Tax credits and rebates on the purchase of new EVs help to make the value proposition stronger, but this only goes to show that the industry is still young enough that it isn’t yet producing enough revenue to be a cash cow for state governments.

These new state fees for electric cars that we’re seeing are very much either a matter of necessity (such as replacing lost gas tax revenues) or are part of a larger plan to develop the EV market (such as with Alabama’s charging station grants). When you’re comparing electric vehicle fees by state, you’ll find that all of them share at least one of these two goals.

Take Advantage of Government Incentives for Installing New EV Charging Stations

In many states across the country, there are grants available that will pay for most or even all of the costs of purchasing and installing new EV charging stations on your parking lots. This is a great opportunity for business owners, property management companies, vehicle fleet managers, and others who operate parking lots.

That’s because EV drivers are more affluent and better-educated than the average motorist, making them highly desirable as employees, customers, and tenants.

At EV Connect, our network charging solutions let you take full control of your EV chargers, so that you can monitor and modify them from a single point of control, easily and efficiently. We offer customization optionsfully hosted networking, and so much more.

Contact us today for a free consultation to learn more about the available incentives, ROI opportunities, and long-term financial benefits of installing EV charging equipment on your lots.

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