States Attack Tax Benefits for Electric Cars – Investopedia

Posted: Tuesday, April 11, 2017

Once upon a time, not so long ago, electric vehicles (EVs) emerged as an attractive option for eco-conscious consumers looking to spare the environment and save money, thanks to state laws mandating tax benefits for electric cars. However, many states are shattering this EV fairy tale. Not only are some states withdrawing EV tax benefits; quite a few are charging extra fees to electric-car owners.

Tax Benefits for Electric Cars: A Brief History

Although the first electric car dates all the way back to the 1800s, EVs did not become widespread in the U.S. until 2000. That’s when the Prius (TM), the first mass-produced hybrid electric car, was released across the globe. A few years later a startup called Tesla (TSLA) announced it would offer a luxury electric sports car that could go more than 200 miles on a single charge. The company received a $465 million loan from the U.S. Department of Energy in 2010 to establish a manufacturing facility in California – and the rest is history. (For more, see Hyundai to Enter Battery Electric Vehicle Market with New SUV.)

When the Energy Improvement and Extension Act of 2008 granted tax credits for new qualified plug-in electric drive vehicles, EVs gained even more steam. As of 2016, 542,000 EVs had been sold in the U.S.

Disappearing EV Tax Credits

Many American consumers are lured into purchasing EVs because they are promised state tax incentives as well as a federal credit of up to $7,500. However, these subsidies are quickly disappearing, as an increasing number of states attack EV benefits. It started in July 2015, when Georgia ditched its $5,000 tax credit on electric cars and enacted a $200 fee on all EV sales. Not surprisingly, electric-car sales took a nosedive in the Peach State immediately following the repeal. Sales tumbled from 1,300 EVs in June 2015 to a mere 97 in August 2015.

Since then other states have followed in Georgia’s footsteps. While some are repealing tax credits for EVs or simply allowing them to expire, at least nine states (including Illinois and Indiana) are also tacking on additional fees for owners of battery-powered cars. As of April 2017 only 17 states were still offering financial incentives for consumers purchasing electric vehicles – down from 25 in prior years.

Although most EV benefit repeals are occurring at the state level, electric-car advocates are concerned that the federal government will follow suit. As the Trump administration is expected to eliminate strict federal regulations of vehicle emissions, many fear that the $7,500 federal tax credit will also disappear.

Drivers Behind the Decision

Why exactly are states taking aim at electric-vehicle benefits? While some claim it’s a move to support the fossil fuels industry, others argue that state money should be allocated to more critical purposes, such as infrastructure.

For instance, a Colorado bill that would end income tax credits for owners of EVs and alternative-fuel vehicles has been working its way through the state legislature. If passed, the bill would shift money for EV tax credits to repairing Colorado’s infrastructure. However, skeptics point out that the bill has been publicly supported by Americans for Prosperity, an advocacy group with strong ties to the petroleum industry.

The Bottom Line

As many states are repealing EV tax benefits, and others are slapping additional fees on electric-car owners, EV sales are plummeting across the nation. While critics say the fossil fuels industry is behind the attacks, supporters insist that state money could be better spent on roads and highways.

Additionally, some lawmakers purport that EV drivers are generally wealthy consumers who simply do not need an additional tax break. “By allowing these subsidies to continue, you are unfairly choosing to use our tax dollars to benefit a finite group of individuals and corporate interests,” claimed Rudy Zitti, deputy state director for Americans for Prosperity, during his testimony before the Colorado legislature. (For more, see U.S. Cities Plan Electric Auto Shopping Spree.)

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