Virginia Governor proposes eliminating gasoline tax, raising taxes on electric cars

On Tuesday (Jan 8, 2013) Virginia Governor Bob McDonnell (a.k.a. “Governor Ultrasound”) proposed to eliminate the gasoline tax, raise sales taxes, raise some other taxes, in an effort to shore up Virginia’s transportation budget.  In part the causative factor is the rise of fuel efficient hybrid and electric vehicles, and an overall decrease in Virginia transportation fund revenues from gasoline taxes.  This occurred in a context where Washington State is about to begin imposing a $100 flat fee for electric car registrations (see Washington State electric car tax going into effect in 2013) and Oregon’s legislature is due to ponder legislation to require a per-mile tax for electric cars (see Oregon considering per-mile road use tax on electric car owners).The proposal starts with “Eliminate the current 17.5 cents per gallon gasoline tax”.  This will be replaced by “a 0.8 cent increase to the Sales and Use Tax (SUT) dedicated to transportation,” coupled with dedicating “.25 cents of the states portion of the existing SUT to transportation.”  Add to that an increase in “vehicle registration fees by $15” dedicated to transit systems, and a “$100 annual Alternative Fuel Vehicle Fee” again dedicated to transit systems.

Eliminating the gasoline tax is probably going to make this proposal very popular.  Gasoline prices have risen a lot the last few years, and the oil companies will probably appreciate an artificial lowering of gasoline prices.  Especially when that’s coupled with an additional fee imposed on owners of “alternative fuel vehicles” (hybrids, electrics, natural gas).  That strikes one as a subtle tilting of the field towards gasoline powered vehicles?  Lowering the cost of ownership for gasoline vehicles, while raising the cost of ownership for alternatives?

The reasons Gov. McDonnell gives are interesting, however.

The Governor is quoted saying: “Declining funds for infrastructure maintenance, stagnant motor fuels tax revenues, increased demand for transit and passenger rail, and the growing cost of major infrastructure projects necessitate enhancing and restructuring the Commonwealth’s transportation program and the way it is funded. We simply cannot continue to do what we have always done and expect this problem to go away. The gas tax is a stagnant revenue source, and no changes to it will provide a reliable growth mechanism for transportation in the state. In short, if we stick to the same old means of funding transportation, we will find ourselves having the same debates and facing the same revenue shortfalls over and over again as inflation slowly eats away at the gas tax, cars get better mileage to meet CAFÉ standards and more alternative fuel vehicles hit the streets. Market forces clearly dictate that we have to change how we fund transportation. This is a math problem. The current revenues numbers do not add up to a safe, efficient and sustainable transportation network. The time is now for an innovative and sustainable plan to meet our transportation needs and grow Virginia’s economy.”

An accompanying fact sheet goes into some details behind this.

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The 17.5 cents state tax on gasoline was imposed in 1986.
The law imposing that tax did not include any provision for inflation, so it has remained at 17.5 cents since 1986, and making the current value equivalent to 8 cents in 1986 dollars.
The Federal gasoline tax also hasn’t risen since the early 1990’s and one could say the same sort of thing about that.
Even so, this gasoline tax provides the lions share of transportation funds.
“Despite increases in the number of registered vehicles traveling Virginia’s roadways and vehicle miles being traveled each year, both of which are indicators for growing maintenance needs, the growing number of alternative fuel vehicles and increasing CAFE standards mean Virginia is deriving less revenue from each vehicle traveling its roadways.”
Long term trend towards fuel efficient vehicles – in 1986 average fuel economy was 10.5 miles/gallon, and Federal law is requiring average fuel economy to rise to 50+ miles/gallon within a few years.  Clearly the long term trend is that gasoline taxes will be a less effective method for collecting road funds.
Already Virginia is having to divert money into the road maintenance fund to keep the roads in repair, because the funding system for the roads is out of kilter.
There’s a big demand coming up for increased spending on rail transit systems:

“Beginning October 1, 2013, Virginia must assume all capital, maintenance and operations costs associated with Amtrak regional intercity passenger rail service pursuant to Section 209 of the Passenger Rail Investment and Improvement Act.”
“In 2011, the General Assembly passed, and Governor McDonnell signed into law, legislation creating the Intercity Passenger Rail Operating and Capital Fund; however, no dedicated revenues were provided. Without dedicated revenues for intercity passenger rail, Virginia will need to divert revenues from other critical areas of need or shut down current passenger rail services.”
“Additionally, transit ridership is up nine percent over the past three years, and new services such as the Norfolk Tide, the Lynchburg-Roanoke Amtrak Bus Bridge, and the expansion of VRE into Spotsylvania are increasing Virginia’s transit funding needs.”

An increase to the gasoline tax, or indexing it to inflation, would not fix the long-term trend away from gasoline.

In other words the plan recognizes a long term shift in the transportation market that will in turn affect the funding of the highway system.

It’s clear – the trend is towards electrification and greater fuel efficiency.  We as a society must do this.  The current system for funding the highway system comes out of gasoline taxes.  Gasoline taxes will inevitably fall as we make this shift towards higher efficient electrified vehicles.  Obviously the funding for the highway system will be undermined by this shift.  Obviously the Government has to do something about this.

As Gov. McDonnell said in the proposal “Transportation is a core function of government. Children can’t get to school; parents waste too much time in traffic; and businesses can’t move their goods without an adequate and efficient transportation system.”  Because it’s a core function, Government must look at how to continue doing it as the system changes.

At the same time this is troubling, as I noted above.  It lowers the cost for gasoline vehicle drivers (eliminates their tax) while imposing a new tax on electric/hybrid vehicle owners.  Really?
There are a couple additional things.  First, while the tax is eliminated on gasoline, it is kept on diesel fuel.  The proposal notes that diesel is primarily used by trucking companies, and companies can afford to continue paying the tax, and in any case trucks are harder on the roads than are regular cars.  I wonder if all those people owning turbo-charged diesel regular cars feel that way?
Second, is a rather obtuse connection to additional sales tax revenue that Virginia is not collecting currently.  This is to come from the Marketplace Equity Act being considered by the U.S. Congress.  It would allow states to collect out-of-state sales taxes.  In other words, each state would be granted by the Federal Government the authority to “compel remote sellers to collect sales tax for the state into which sales are made.”  What this appears to mean is sales through online stores like Amazon.com that currently are done without sales tax.  Virginia believes they are supposed to be collecting this tax revenue, but most people simply don’t pay it etc.  The additional revenue (that they were supposed to be collecting anyway) will be going into transportation funds.

About David Herron

David Herron is a writer and software engineer living in Silicon Valley. He primarily writes about electric vehicles, clean energy systems, climate change, peak oil and related issues. When not writing he indulges in software projects and is sometimes employed as a software engineer. David has written for sites like PlugInCars and TorqueNews, and worked for companies like Sun Microsystems and Yahoo.

About David Herron

David Herron is a writer and software engineer living in Silicon Valley. He primarily writes about electric vehicles, clean energy systems, climate change, peak oil and related issues. When not writing he indulges in software projects and is sometimes employed as a software engineer. David has written for sites like PlugInCars and TorqueNews, and worked for companies like Sun Microsystems and Yahoo.

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