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Texas bid to impose special state tax on electric vehicles fails — for now

Bob Sechler
Austin American-Statesman

An effort to impose what amounts to a special state tax on electric vehicles fell short of the finish line in the recently concluded legislative session, although the reprieve from new road use fees might be temporary.

That's because debate about the issue largely focused on how much and when — not if — owners of electric and other vehicles that aren't powered by gasoline should pay. The possible fees are likely to come up again in 2023 during the next regular session of the Legislature, if not before then in a special session.

An electric vehicle charges at a Whole Foods charging station in downtown Austin recently. Owners of electric vehicles won't have to pay a special state road use fee because legislative efforts to enact one failed.

"We think we should pay a fair fee, but the question is what is fair?" said Tom “Smitty” Smith, executive director of the Texas Electric Transportation Resources Alliance, a lobbying group that advocates for the sector.

He was among the opponents of the legislation, which would have set the fee at $200 annually for most electric cars, calling it nearly double the amount many drivers of equivalent conventionally powered vehicles pay in gasoline taxes each year.

A major portion of the 38.4-cents-per-gallon state and federal gas tax collected from drivers of conventional vehicles is used for road upkeep. Electric vehicles aren't powered by gas, however, meaning their drivers don't pay the tax.

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That has raised concerns — among Republicans and Democrats alike — that money for road maintenance will drop as electric and other alternatively powered vehicles increase in popularity.

The issue is gaining prominence just as Tesla — the top maker of electric cars in the world and the most valuable automobile company by stock market value — works to complete a factory in southeastern Travis County that will elevate Texas to a strong position globally in the still-emerging EV sector. The Tesla factory is expected to be operational late this year.

State Rep. Terry Canales, speaking during a House committee hearing last month, lamented the potential decline in "one of our state's most reliable transportation revenue streams" as electric and other alternatively powered vehicles become more numerous on Texas roads.

Road use fees for electric vehicles are likely to come up again in 2023 during the next regular session of the Legislature, if not before then in a special session.

“Now is the time to create a funding mechanism to capture this lost revenue that our state desperately needs to move forward," he said.

Canales, D-Edinburg, was the House sponsor of Senate Bill 1728, a measure written by state Sen. Charles Schwertner, R-Georgetown, that would have imposed fees on electric vehicles as well as gas-electric hybrids and others powered by alternative fuels. 

The bill was the last measure standing this session that would have imposed the fees, clearing the Senate but ultimately dying on the House floor without coming up for a vote amid legislative maneuvering during the session's waning days. Neither Schwertner nor Canales responded to requests for comments Tuesday.

More than two dozen other states already levy special fees on electric vehicles to make up for the dearth of gas taxes from their drivers. But such fees have been blasted as exorbitant in many cases relative to what drivers of conventional vehicles fork over in gas taxes — a criticism echoed by much of the opposition to the unsuccessful legislative measures aimed at instigating them in Texas.

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SB 1728 was altered during the legislative process to base the charges on miles driven, using a sliding scale. But many proponents of electric vehicles said the scale was set too high and still would have resulted in hefty fees for typical drivers.

In addition, some said the state should wait to impose any special fees until the number of electric and alternatively fueled vehicles on Texas roads becomes more significant. The figure has been growing but remains tiny compared with conventional vehicles, they said, so there's little for Texas to gain from the fees but a lot to lose economically and in terms of environmental benefits if the burgeoning industry is hurt.

Construction continues on a Tesla factory in southeastern Travis County that will elevate Texas to a strong position globally in the electric vehicle sector. The factory is expected to be operational late this year.

Taxes on motor fuels generated about $2.6 billion for the state's highway fund during the 2020 fiscal year that ended last August, according to the state comptroller's office. An analysis by the state's Legislative Budget Board found that SB 1728 would produce no more than about $67 million annually for the highway fund by fiscal 2026.

"It's kind of mind-boggling why (some state lawmakers) are jumping on this with such vigor," said Matt Holm, president of the Tesla Owners Club of Austin. “Across the board, it just seems punitive."

Holm, speaking last week before SB 1728 died in the House, said implementation of such fees just before the opening of the Tesla factory would send the wrong message to the company, as well as to suppliers and others in the industry that are here already or considering moving here.

“It's a bit of a slap in the face," he said. "We definitely won't be saying, ‘Welcome to town. Let's have fun doing business.’”