EV Registration Fees: Evaluating effectiveness, defensibility, and alternatives

What are EV registration fees?

EV registration fees are the fees that purchasers of electric vehicles (EVs) must pay at the time of purchase. In many cases, these fees are accompanied by annual fees that owners must pay each year that they own an electric vehicle. These fees are typically added on top of the usual registration fee for all cars and often exceed the amount that ICE (internal combustion engine) vehicle owners pay in gas tax.

Why are they necessary?

Motor fuel taxes have long been used by the federal and state governments to fund the construction and repair of roads, bridges, highways, and other transport-related infrastructure. Because EVs are not subject to the motor fuel tax, fewer funds are available to state and federal transportation departments as more drivers transition from ICE vehicles to EVs. EV registration fees help—in a small way—to compensate for this loss of revenue.

What is the problem?

EV registration fees . . .

. . .are often unduly discriminatory.

• Not only are EV registration fees required on top of motor vehicle fees, but they are often two to four times higher than what ICE vehicle owners pay in gas taxes. While most fees across the US range from lows of $50 to highs of just over $200, Texas, for example, charges $400 to register a new EV (amounting to an almost 800% increase in registration fees) and $200 annually 2 years after the initial registration, despite having one of the lowest gas taxes in the country.

• According to research from Consumer Reports, over half of registration fees imposed across the US are “punitively high,” meaning that they exceed the amount that ICE vehicles are required to pay in gas taxes. Rather than equitably compensating for a loss in revenue from gas taxes, state legislatures are employing a haphazard approach to deciding EV registration fees, with some states passing blanket registration fees that are virtually equivalent to gas taxes on ICE vehicles that get 9-10 miles per gallon.

. . . do little to address the problem of declining transportation funds.

• EV registration fees are being proposed to compensate for declining gas tax revenue. But the Federal Highway Trust Fund is projected to face a funding shortfall of over $217 billion by 2032, and proposed EV fees will only generate about 0.3 percent of state highway funding by 2025. With changes to gas taxes barely accounting for inflation and EV registration fees being set at unduly discriminatory rates (and still having negligible impact), it is clear that states require a more comprehensive approach to funding transportation infrastructure.

. . . can deter EV ownership, especially in states with EV manufacturing investment.

• While a registration fee may seem small in comparison to the price of a vehicle, research indicates that it presents a measurable barrier (both financial and psychological) on EV adoption. 

• Furthermore, many states that tout the benefits of EV investment also charge the highest EV fees. At least 5 of the top 10 states for EV-related investment over the past 8 years charge additional EV registration fees of  $120 or greater (Georgia-$212.78; Ohio-$200; Indiana-$150; North Carolina-$130; Kentucky-$120). Thus, although these states play a leading role in bolstering the US EV market, they deter local populations from buying in-state manufactured products and effectively serve out-of-state markets with more favorable EV policies.

How can state and federal transportation agencies boost funds while also spurring EV adoption?

[STATE] Data-backed formula to determine EV registration fee

• This method presents an alternative approach to the haphazard way many legislatures set EV registration fees. Because the goal of the EV registration fees is to compensate for lost gas tax revenue, states can apply a three-step approach to achieve an evidence-based, justifiable EV registration fee:

• Step 1: Make the gas tax variable to address funding gaps by implementing a wholesale tax on the gasoline price, applying state sales tax to gasoline, or adjusting the tax based on annual changes in fuel efficiency, and indexing the tax to inflation

• Step 2: Index the EV fee to the updated gas tax using the following formula: [Average annual VMT/fuel economy (mpg)] x State Gas Tax. To differentiate between passenger cars and SUVs, different fuel economy averages can be used.

• Step 3 (optional): Additional fees can be applied based on the manufacturer's shipping weight of the vehicle (with a potential option to subtract weight for passenger EVs, as in the case of Washington, DC, to encourage EV offtake)

[STATE/FEDERAL] Road usage charges (RUCs)/vehicle-miles traveled (VMT) fees

• RUCs (or VMT fees) charge drivers based on the miles they drive on public roads and highways. (Under a bill that passed the House in 2020, this fee was based on an equation dividing the amount collected in gas taxes divided by miles driven by passenger vehicles, which worked out to about nine-tenths of a cent per mile). Pilots have been proposed and implemented in different states, to varying degrees of success.

• The benefit of RUCs is that they: 1) more closely correlate driver costs to road wear-and-tear, 2) can be adjusted based on vehicle weight, and 3) may deter unnecessary road use. However, they also present challenges, including: 1) privacy and administrative costs associated with GPS installation and route tracking; 2) disproportionate cost burdens on rural, remote, and low-income drivers who travel longer distances and own less fuel-efficient cars; and 3) failure to collect fees from out-of-state drivers.

[STATE] Tolls with congestion pricing

• Tolls with congestion pricing vary during the time of day or amount of traffic on the road. Cities in states such as California, Florida, Minnesota, New York, Texas, and Virginia, already use some form of congestion pricing. This option boosts state transportation revenue by increasing tolls during the most traffic-heavy times of day while also encouraging alternative routes to better distribute road impacts.

[FEDERAL] Surcharges on commercial activity occurring on US streets and highways

• Instead of increasing gas taxes, a surcharge on commercial activity could be included in the costs that customers pay for goods delivered via roads and highways. Rather than being levied on the value of the good itself, it would be based on the value of its transport. In practice, the surcharge would be added at a fixed percentage of the price for road transport of goods (determined either by the prices that transport/logistics companies charge their customers or—in the case of companies like Amazon that ship their own products—federal tax filings indicating these costs).

• A commercial activity surcharge would avoid the privacy and cost collection concerns of the VMT tax, as well as the equity issues of the gas tax (which disproportionately hits low-income drivers) and help address the Highway Trust Fund’s shortfall. Former Maryland Transportation Secretary Pete Rahn has suggested that an 8% surcharge could generate about $76 billion annually.

[STATE/FEDERAL] Reasonable EV charging fees

• On average, EV owners save hundreds of dollars per year by “fueling” their cars with electricity over gas. Yet very few states impose EV charging taxes, and most that have passed per kWh charging taxes will not start imposing them until 2024 or 2025. These relatively low fees (which so far do not exceed $0.03/kWh) boost transportation revenue while avoiding the upfront barriers of EV registration fees.