Will the Gas Tax Become Extinct

Will the Gas Tax Become Extinct?

Imagine a government-mandated device that tracks where you are and every mile you travel. It has already appeared in our lifetime.

A vehicle miles traveled fee program (VMT) offers just that. The benefit of a VMT tax compared to the gas tax is it applies to vehicles powered by gasoline, diesel and alternative fuel, including electric vehicles (EV). Realistically, a VMT tax would act as either a supplement or replacement of the gas tax, which is slowly losing its ability to fund infrastructure due to fuel-efficient vehicles and a lack of tax reform.

Federal government mandates for increased miles per gallon (MPG) on automobile manufacturer fleets has led to less fuel purchased/sold. Consequently, less fuel tax is collected for the same amount, if not more, vehicle miles driven on roads. Also, the federal fuel tax has not increased in over 20 years, while several states continue to raise their tax rates to make up for revenue deficits.

Oregon Leads the Way

Oregon is the first state to have implemented the VMT program, which uses a plug-in device that tracks miles driven and fuel consumed. The technology has proven to be fairly reliable, however, critics of the program are hesitant to adopt a device that tracks where they are and miles driven.

The other option is a non-GPS road usage charge (RUC) program. The replacement is called OReGO, a voluntary program that charges drivers 1.5 cents for every mile they drive. Currently, there are around 900 active participants in the program, but a state task force wants to expand the program to all new vehicles above a particular fuel economy. Carl Davis, research director for the Institute on Taxation and Economic Policy (ITEP), Washington, D.C., describes the VMT tax as “a promising idea whose time hasn’t come quite yet,” considering less than 1 percent of new vehicle sales were EVs in 2016.

California Follows the Leader

"It's no secret that the gas tax system is just not sustainable," said California Department of Transportation spokesman Mark Dinger. "It hasn't been [increased] for more than 20 years here in California, and now people are driving further with less gas." Last year, California finally gave the green light on a pilot program that tests ways to create a vehicle miles traveled fee program as a replacement for the gas tax. Volunteers report their miles traveled to the state but currently don’t pay the state any money.

The Battle Between Gas Guzzlers and Fuel-Efficient Vehicles

Comparing the VMT and gas tax, a VMT model collects less money from gas guzzlers and more money from fuel-efficient vehicles. This helps solve the gas tax downfall: less revenue from fuel-efficient vehicles.

Rather than opting for a VMT tax, approximately a dozen states collect annual fees on EVs — ranging from $50 to $300 — to support infrastructure. “Charging every EV owner the same flat fee no matter how much they drive — that’s not the ideal in terms of calibrating the tax to a driver’s usage of roads,” Davis said. However, these fees are an imperfect, temporary solution for a “period of transition” in transportation technology as it shifts from mostly gasoline-driven to more electric-powered.

The Trouble With Taxes

Logistically, a VMT tax would be difficult to implement at the federal level because taxes are currently collected from only a handful of suppliers (taxpayers), whereas a VMT tax would introduce more than 130 million vehicles (taxpayers) and an infinite amount of miles to be tracked and billed.

If the VMT tax became a replacement for the gas tax, motor fuel tax directors and software could become a thing of the past. However, this is unlikely to ever occur, due to the tediousness of trying to track every mile driven and the invasiveness of a GPS tracking system. What you are more likely to see is a supplement to the gas tax using a VMT tax, which could take years to implement, considering how many “traditionally” fueled vehicles and how few electric vehicles are on the road. Although there are small steps towards a VMT tax, it remains unlikely we'll ever see the VMT tax completely replace the gas tax in our lifetime.

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    Bob Donnellan

    Bob Donnellan

    Motor Fuel Tax Subject Matter Expert

    This analysis is intended for informational purposes only and is not tax advice.  For tax advice, consult your tax adviser. See the full disclaimer here.