• ITVI.USA
    15,314.590
    184.430
    1.2%
  • OTRI.USA
    24.080
    0.010
    0%
  • OTVI.USA
    15,313.750
    188.540
    1.2%
  • TLT.USA
    2.710
    0.000
    0%
  • TSTOPVRPM.ATLPHL
    3.350
    0.280
    9.1%
  • TSTOPVRPM.CHIATL
    3.090
    0.230
    8%
  • TSTOPVRPM.DALLAX
    1.730
    0.070
    4.2%
  • TSTOPVRPM.LAXDAL
    3.100
    0.150
    5.1%
  • TSTOPVRPM.PHLCHI
    2.160
    0.120
    5.9%
  • TSTOPVRPM.LAXSEA
    3.570
    0.220
    6.6%
  • WAIT.USA
    125.000
    -2.000
    -1.6%
  • ITVI.USA
    15,314.590
    184.430
    1.2%
  • OTRI.USA
    24.080
    0.010
    0%
  • OTVI.USA
    15,313.750
    188.540
    1.2%
  • TLT.USA
    2.710
    0.000
    0%
  • TSTOPVRPM.ATLPHL
    3.350
    0.280
    9.1%
  • TSTOPVRPM.CHIATL
    3.090
    0.230
    8%
  • TSTOPVRPM.DALLAX
    1.730
    0.070
    4.2%
  • TSTOPVRPM.LAXDAL
    3.100
    0.150
    5.1%
  • TSTOPVRPM.PHLCHI
    2.160
    0.120
    5.9%
  • TSTOPVRPM.LAXSEA
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  • WAIT.USA
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Electric TrucksEnergyFuelFuel cellsInfrastructureNewsTop StoriesTrucking

I can drive for miles and miles … can states tax me on it?

States look at miles traveled formulas to counter revenue decline from motor fuels taxes

On March 13, Pennsylvania Gov. Tom Wolf announced that the state would phase out its motor fuels tax, making it the first state to propose eliminating the historic levy that has been the primary source of transportation funding. Wolf, a Democrat, said the tax could no longer be relied upon to replenish Pennsylvania’s coffers amid radical changes in freight and passenger mobility.

Fully sunsetting the state’s tax on diesel and gasoline consumption is a high-stakes dice roll. Fuel taxes generate about 56% of Pennsylvania’s transport tax revenue, according to the nonpartisan Tax Foundation. The state already has either the highest or second-highest fuel taxes in the country, depending on whether the calculations include California’s sales tax on fuel. Pennsylvania’s diesel tax is currently more than 75 cents per gallon. 

Despite those high levies, Pennsylvania faces a transportation funding gap of $9.3 billion. The chasm is expected to widen to $14.5 billion by 2030 without a material increase in revenues, the state has estimated. Assuming the 56% ratio stays constant, fuel taxes would need to double from current levels to wipe out the funding gap, the Tax Foundation said in March. Wolf, who did not put a time frame on the planned phase-out, has formed a coalition to report back to him by Aug. 1 with alternative funding proposals.

Wolf’s warnings could have come from any of his 49 fellow governors. Most are exploring ways to fund their states’ transportation projects amid long-range forecasts of gradually declining fuel tax revenues due to more fuel-efficient internal combustion engines and the sales growth of electric-powered vehicles that don’t consume diesel or gasoline. In addition, the COVID-19 pandemic dramatically reduced commuting miles because many employees now work remotely. This has cut into fuel tax receipts, a trend that may be permanent if millions of Americans are allowed to continue working from their homes.

The federal government disburses to states and localities the proceeds from federal excise taxes on diesel fuel and gasoline consumption. However, those tax rates haven’t been increased since October 1993. The multidecade erosion of purchasing power has meant that the dollars contributed at the federal level today buy about 40% of the goods and services they did in 1993. The federal tax on diesel fuel is 24.4 cents a gallon. The tax on gasoline is 18.4 cents a gallon. 

There appears to be little interest in Washington to raise fuel taxes. President Joe Biden’s $2 trillion infrastructure proposal — $621 billion of which would be allocated to transportation — does not contemplate raising fuel levies to finance it. The federal Highway Trust Fund, the mechanism by which the federal government disburses fuel tax money, has for years required capital injections from the general Treasury just to stay solvent. There is likely no appetite in Congress to go to that well again, especially after more than $5 trillion has gone out the door during the past 12 months for COVID-19 relief.

States could boost their fuel taxes and other fees, as they have done dozens of times over the past 30 years. However, most governors are Republicans, and most legislatures are GOP-controlled. Republicans typically have a low-tax ideology, and that mentality is still pervasive nationwide despite the progressive words and actions coming from the Biden White House.

Rock, meet the hard place

State transportation departments can see the rock and the hard place in front of them. However, their worries are generally not shared by the politicians who loosen or tighten the purse strings, said Asha W. Agrawal, director of education at the Mineta Transportation Institute. “State DOT leaders are exhibiting their fair share of urgency. With elected officials, there is much less of a sense of urgency,” Agrawal said.

That could be because the challenge is never right in politicians’ faces. Despite the decades-old hand wringing over the nation’s “crumbling” infrastructure, there have been very few instances of roads caving in or bridges collapsing. What’s more, there is no hard evidence that fuel tax revenues are currently on the decline, said Dan Murray, senior vice president of the American Transportation Research Institute (ATRI), the research arm of the American Trucking Associations. 

Electric-powered vehicles have garnered a ton of publicity in a world focused on the impact of climate change. However, EVs make up just 1.2 million of the estimated 272 million registered vehicles in the U.S., according to ATRI. The group forecasts that 18 million EVs will be on the road by 2030.

Other forms of revenue raising, such as tolling and a levy based on vehicle miles traveled (VMT), otherwise known as a road-user charge (RUC), spark arguments over jurisdictional and social equity. A VMT tax, which as the name implies is levied on the number of miles a vehicle travels, may be workable for a trip within a state. However, apportioning the funds would be harder for a trip that traverses several states. To remedy that issue, several states have pilot programs requiring drivers to pay state taxes at the pump, but then receive rebates from areas outside of their main jurisdiction.

The trucking industry would be an ideal candidate to convert to a mileage-based user fee scheme because it is already governed by programs requiring reciprocal agreements and divisions of fuel taxes, wrote Robert Poole, director of transportation research for the think tank Reason Foundation, in December. For example, a joint U.S.-Canada program called the International Fuel Tax Agreement (IFTA) carves up fuel taxes paid by trucks in the areas that they drive through. Truckers register in the state of their domicile and file one quarterly fuel tax return in that jurisdiction, Poole said. IFTA then receives data on the number of miles driven in each jurisdiction and the amount of fuel purchased in each so it can divvy up the fuel tax, Poole said. 

The IFTA protocol is, in theory, an example of how a key segment of transportation could calculate fuel tax rebates as it transitions to a mileage-based formula, so a trucker would pay the fee instead of a state motor fuels tax, Poole wrote.

Last year, four truckers deployed 60 trucks along Interstate 95 on the U.S. Eastern Seaboard to pilot-test a VMT model across multiple states. The group, the Eastern Transportation Coalition, did not respond to a request for comment on its progress.

How low can you go?

Perhaps the biggest obstacle to any shift in funding formulas, though, is the unbeatable administrative efficiency of the motor fuels tax. It costs the federal government the equivalent of 0.2 cents on the dollar to administer fuel tax collections and disbursements, according to ATRI data. States pay the equivalent of 2 to 3 cents on the dollar in administrative costs, the group said. 

In contrast, the costs of administering VMT or another funding source such as tolling, even with the use of efficient technology such as E-ZPass transponders, will remain much higher than the status quo. In Oregon, which in 2021 launched a VMT pilot program for cars (the state has imposed a weight-distance tax on trucks for many years), the administrative costs work out to about 40 cents on the dollar, Murray said. Over time, Oregon might be able to shrink those costs to about 10 cents on the dollar, but won’t be able to go lower than that, he said.

Despite the obstacles, it is generally agreed that something must be done to capture the cost of EV usage, especially as the vehicles become more prevalent on the nation’s highways and roads. The VMT is seen by experts as the best option because it taxes road use directly. The VMT also is assessed independent of a vehicle’s fuel economy, which is important if the tax is imposed to recover costs associated with road and bridge wear and tear.

Besides Oregon, Utah, California and Virginia, as well as industry coalitions, have been working to develop alternate mechanisms. In November, the California Department of Transportation beefed up a 2017 road-user charge pilot through the launch of a six-month demonstration project, according to Tony Dorsey, spokesman for the American Association of State Highway Transportation Officials (AASHTO).

In their 2018 legislative session, Utah lawmakers passed an alternative fuel vehicle fee to cover part of those vehicles’ costs to maintain the state’s transportation system. ​The fee was on top of the annual registration fee assessed on all vehicles in the state​. In addition, Utah offers owners a choice of paying by the mile or paying the fuel vehicle fee. 

The federal government is also involved, albeit in a small way. The Federal Highway Administration recently awarded $18.7 million in Surface Transportation System Funding Alternatives grants to eight projects to test new user-based funding methods for highways and bridges. Those projects — led by six state DOTs and two transportation coalitions — “will explore a variety of ways to provide long-term fiscal support to the Highway Trust Fund,” Dorsey said.

In scrapping the motor fuels tax, Pennsylvania plans to go where no state has gone before. Poole said the “either-or” attitude of either a fuel tax or a VMT tax that drives some states’ initiatives is misguided. Instead, his organization has proposed what he calls a “different kind of transition.” The largest and most utilized highways, such as the interstate system, would convert to a mileage-based scheme supported by rebates of state gas taxes paid at the pump. Fuel tax revenues could then be focused on the rest of the highways, and technology could be leveraged to solve issues on the remaining roads, Poole said.

Any changeover, he said, will have to be gradual and well thought out. It will take years to build public acceptance, and attempts to convert whole-hog are likely doomed to fail, he said.

Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.

4 Comments

  1. 1.2 million electric vehicles out of 272 million total registered vehicles nationally works out to .44% of the total number of vehicles on the road: LESS THAN 1/2 OF 1%! Do these states think we agree THAT’S what has them gasping for infrastructure funding?

    In many states a vacation trip can cover multiple states. Will Mr & Mrs America be ready to do their quarterly IFTA taxes like commercial carriers do? Will they have to pay for state fuel tax permits at the state line point-of-entry if they don’t have a tax sticker or an apportioned plate?

    Why does everyone have to ante up more because states say EVs are cutting into their fuel tax revenues (which is BS)? Why not add an EV surcharge to the yearly registration?

    Democrats are in a tax increase mood these days.

    1. 100% agree with your thinking, bust must add this… Soon the government will kill the electric car industry with taxation… They subsidize coal fired electric cars into existence, and then tax it in to oblivion, along with coal and nuclear… Government, meh.

  2. It costs virtually nothing to increase the motor fuel tax. Any other method will be expensive and intrusive, but governments always prefer inefficiency and increased intrusiveness. It would be easy to tax electric vehicles by requiring them to report charging kilowatts via cell phone data links, which would cost very little to implement.

  3. Reading comments and surely I see a ton of backlash…
    Imagine if States would leave fuel tax alone and just dip instead into the truck repair business, owing shops and parts distribution, implement price policies and let the ones who destroy the roads the most, pay for it the most… that would be fair enough, but most likely would bring revolts and even more backlash. You want good roads, well , pay for them!!!

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