VMT Taxes, Explained

 

By Mahmoud Ahmadi, PhD, PE, Principal + Director of Transportation Engineering, West Coast

Electric vehicles (EVs) are rapidly gaining acceptance and market share. More than 750,000 electric vehicles were sold in 2020, the fifth consecutive year of growth in EV sales. There are more than 1.18 million electric vehicles on the roads in the U.S. and total EV sales grew 81% from 2017 to 2018. States such as California and Massachusetts have announced plans to ban the sale of gas-powered vehicles by 2035. As EVs gain traction, they are reducing revenues generated by gasoline taxes, which underpin roadway infrastructure and mass transit funding.

The eroding value of the gas tax has been a long-term issue that predates the growth in electric car sales, due to increases in fuel efficiency. According to a Tax Foundation analysis, “revenues per vehicle mile traveled (VMT) are decreasing in real terms while expenditures are increasing in real terms. In 1994, a passenger car averaged 20.7 miles per gallon (MPG) and drivers paid 3.2 cents in state and federal tax per VMT. In 2018, a passenger car averaged 24.4 MPG and drivers only paid 2.1 cents per VMT.”

In response, states and the federal government have been exploring avenues to recuperate the lost revenue, such as tying taxes to other metrics like the inflation rate. One potential solution is to establish a user fee system tax based on vehicle miles traveled (VMT).

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The new $1.2 trillion infrastructure plan includes $125 million toward a VMT tax pilot program. The money would explore the possibility of a federal vehicle miles traveled tax (VMT) by funding the launch of pilot programs at the federal, state, and local level. This effort builds on studies in Utah, Virginia, Washington, and Pennsylvania in the 10 last years. Some of the key findings and observations from these previous VMT tax pilots are:

Pros :

  • Gas efficiency and EV sales are increasing, and there needs to be another way to pay for road maintenance.

  • VMT taxes charge users for the miles they drive, leading to a more equitable distribution of fees.

  • VMT taxes prepare for the future, which will have a higher percentage of electric vehicles.

Cons:

  • VMT taxes would be more expensive to administer and collect. Unlike the gas tax, which is calculated at the pump, there would be a more complicated management system for VMT tax collection.

  • VMT taxes require information on miles driven; the extant technology for tracking VMT is costly and requires data sharing. This comes with privacy and equity concerns.

  • A VMT tax could be potentially harmful to those living in rural areas where destinations are a greater distance apart, or to anyone who must drive long distances to work or home.

The challenge facing the federal government and states is reconstructing or reforming the gas tax definition and collection method to be both more equitable and a sustainable revenue source.

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Sam Schwartz Staff