The State of EV Taxation: Which States Tax, Incentivize, or Both

As electric vehicle sales continue their rapid growth across America, lawmakers are eager to encourage more consumers to make the switch to climate-friendly electric vehicles. But even as more programs are introduced to promote EV adoption, a new challenge has emerged: how to fund road infrastructure.

States have long levied taxes on gasoline sales to pay for road maintenance and maintain their transportation infrastructure, but that approach is becoming outdated as more drivers go electric and pay little to nothing at the pump. This has created a looming fiscal gap that states must address through updated tax policies specific to electric vehicles.

The result has been a patchwork of strategies aimed at balancing road funding needs with incentives to promote EV sales. Many states are offering generous tax credits to make EVs more affordable upfront, while others are imposing new fees and taxes on electric vehicle ownership and charging to make up for declining gas tax revenues. A number of states are even implementing policies that do both. Let's take a look at the state of electric vehicle taxation across the country.

The Fiscal Gap Created by EVs

For decades, gasoline taxes have provided the primary funding source for maintaining roads, highways, and other transportation infrastructure across the United States. When you think about it, it makes sense. Taxing each gallon of gas you purchase aligns with your actual road usage—the more you drive, the more gas tax you pay. Gas taxes also helped disincentivize excessive driving and encourage carpooling by making it more expensive to fill up at the pump.

However, as EVs continue to gain market share, this gas tax-centric system will not be able to keep up with infrastructure funding needs. Since most electric vehicle drivers don’t pay gas taxes, states are seeing tax revenue decline steadily in relation to road usage. With less money coming in but growing demands for infrastructure repairs and expansions, states face a widening fiscal gap and have needed to make changes to address it.

The Federal EV Tax Credit and Other Incentives

To accelerate the adoption of EVs and promote their environmental benefits, the federal government offers federal tax credit of up to $7,500 for drivers and electric vehicle models that meet eligibility requirements. The tax credit also provides up to $4,000 for used EV purchases.

In addition to the federal tax credit, a number of states are offering their own EV tax credits, sales tax exemptions rebates, and other incentives aimed at making electric vehicles even more affordable.

The highest state incentives match the full $7,500 federal credit amount. They are available in Connecticut through the Connecticut Hydrogen and Electric Automobile Purchase Rebate (CHEAPR), Maine through the state’s Efficiency Maine program, and Oregon through the Oregon Clean Vehicle and Charge Ahead programs. California’s Clean Vehicle Rebate Project, which also offered a $7,500 credit, is currently closed to new applications. However, there are a variety of local incentives still offered in California, depending on where you live. Other leading states include:

• Colorado: Up to $5,000 tax credit
• Vermont: Up to $5,000 credit
• New Jersey: Up to $4,000 rebate
• Oklahoma: Up to $5,500 rebate

Even some states with lower incentives, around $1,000 to $2,500, like Alaska, Delaware, Illinois, Kansas, and Pennsylvania, can significantly lower the sticker price of an EV purchase when combined with other charging rebates and local incentives.

Higher Registration Fees for EVs

While purchase incentives make EVs cheaper upfront, an opposing trend aims to have EV drivers pay additional fees and other costs to operate their vehicles on public roads to offset the loss of gas tax revenue. In response to the decline in gas tax collections, 24 states have enacted policies to impose additional registration fees specifically for EVs and some fuel-efficient plug-in hybrid vehicles.

These "EV road taxes" range from relatively modest amounts like $50 annually in South Dakota and Hawaii to $200 or more each year in Ohio, West Virginia, Wyoming, and others. Eight states have EV fees between $120 and $150 annually.

The rationale makes sense—without contributing to road funding through gas taxes, EV drivers should pay higher registration fees to maintain infrastructure. However, it’s also worth noting that these fees are a drop in the bucket compared to the average fuel savings most EV drivers will enjoy per year.

States With Both Incentives and Fees

Caught in the conflicting policy goals of encouraging EV sales versus maintaining gas tax revenue replacements, a handful of states offer a carrot-and-stick approach.

While not inherently contradictory, these policies signal that states are attempting to find the right balance to sustain funding while not dampening consumer demand for environmentally-friendly vehicle options.

Taxing EV Charging Stations

Beyond registration fees that act as a targeted user tax for EV road usage, a small but growing number of states are implementing taxes directly on electricity consumption at public charging stations. The goal is twofold: raise revenue explicitly from EV drivers and send price signals to moderate electricity demand from EV charging.

Six states have recently passed laws enabling new taxes on public charging stations:

• Georgia will tax all kilowatt-hours dispensed
• Iowa already imposes $0.026 per kWh
• Kentucky will have $0.03 per kWh in 2024
• Montana has $0.03 per kWh or equivalent starting in 2023
• Oklahoma will implement a charging tax in late 2023
• Utah just enacted a retail tax on charging station electricity in March 2023

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Vehicle Miles Traveled (VMT) Taxes

While registration fees and charging taxes are potential solutions, a more direct and equitable approach could be to tax based on the vehicle miles traveled (VMT) each year. This strategy has been promoted by some policy experts as the most straightforward way to fund transportation infrastructure based on actual usage across different vehicle types.

Federal legislation has provided funding for state-level pilot programs to test VMT tax systems and technologies. Utah has already run a pilot and will soon implement an annual per-mile road usage charge for EVs in lieu of its current flat registration fee. Hawaii will follow suit in 2025, scrapping its existing $50 EV fee in favor of a VMT road charge.

If successful (and able to navigate privacy concerns around tracking vehicle movements), VMT taxation could represent the future of sustainable transportation and infrastructure funding as America moves away from gas taxes.

The State of Change: What Does This Mean For Electric Vehicle Drivers?

No matter which path they choose, it's clear states must determine how to modernize their transportation funding mechanisms as EVs become mainstream. The legacy system of taxing gasoline is quickly becoming obsolete in the electric future.

While there's no one-size-fits-all solution yet, the emerging patchwork of state policies points to a new equilibrium that attempts to balance the continued incentivization of climate-friendly electric vehicles with EV-specific taxes and fees to sustainably fund infrastructure. As an EV driver or prospective owner, it’s important to understand not just the upfront costs and incentives in your state, but also the ongoing fees and taxes you may encounter in order to get a clear picture of how much you could save.

However, no matter where you live, EVs remain a smart long-term investment that can insulate you from gas price volatility while reducing your environmental impact.

Feeling overwhelmed by all the complex tax credits, eligibility requirements, and tax regulations around EVs? The trusted EV financing experts at EV Life can help you navigate the incentives and fees to make the right investment for your situation.

Getting the Most From Your Used EV Incentives With EV Life

When you finance your electric vehicle with an EV Climate Loan from EV Life, you are guaranteed to get the best rates and affordable payments tailored for your budget.

EV Life also ensures that you receive the full benefit of every federal, state, and local incentive you qualify for, no matter where you live. Our EV financing experts will facilitate the process of applying for all available electric vehicle tax credits, rebates, grants, and incentives at the time of purchase, so you're not waiting months during the application processing period to receive your money.

Here’s how it works:

• Pre-qualify for more than financing. When you pre-qualify for a loan on your used EV, we help you maximize your federal, state, and local tax credits and other incentives for which you qualify. We then help you apply for all the paperwork with our easy-to-use “Turbo Tax-style” incentive filing tools.
• Bundle charging. EV Life can also help you get an instant quote for EV charging equipment installation (including any charging incentives you’re eligible for) and bundle it into your auto financing—all with one lower monthly payment.
• One low payment. Once we’ve gotten you every dollar available to help reduce to cost of your purchase, EV Life will gather all your savings and apply them directly to your car loan at the point of sale, significantly reducing your monthly payment right from the start.

The future is electric, and there's never been a better time to purchase an electric vehicle. Get behind the wheel of your dream zero-emissions ride while taking full advantage of the money-saving incentives—saving the planet while saving your pocketbook.

Get pre-qualified today to discover how much you could save on your used EV.