Extras on Excise: Will Big Brother Soon Track Your Car For Tax Purposes?

Big Brother may already be listening in on your phone calls and scanning your emails and texts—will he also soon track and tax your mileage as a state gas tax replacement? 

The California Legislature enacted legislation last week (S.B. 1077) that lays the groundwork for a “road usage charge” pilot program—which would impose taxes on drivers based on their miles traveled on the state’s roads and highways, instead of the current per-gallon tax paid at the pump.

While several states have considered this kind of revenue stream, Oregon was the first to establish such a program, scheduled to be operational by July 1, 2015. Under Oregon’s program, vehicle owners or lessees can pay a 1.5-cents-per-mile road usage charge and get a refund for the gas tax that they paid. 

All states impose some kind of gas tax that generally supports transportation infrastructure, but the taxes and fees that drivers actually pay make up a smaller share of total highway funding than at any point since the Interstate Highway System was created in 1957, according to a May 2014 policy brief by the Institute on Taxation and Economic Policy (ITEP).

This is partly due to the way the gas tax is generally structured, and partly due to people driving more fuel efficient vehicles. Some states impose a flat gas tax and lose buying power to inflation for each year the rate is not increased.  Other states impose a variable rate gas tax—sometimes based on price like a traditional sales tax, other times based on a broader measure of the economy’s inflation, or a hybrid of the two, according to ITEP. A variable-rate gas tax can cushion transportation infrastructure revenue a little better against inflation, but it does not replenish revenue lost to the use of more fuel efficient vehicles. 

At a time when the flat federal gas tax has not been increased since 1993, and the federal Highway Trust Fund has repeatedly needed to be plugged with money from other funds, California sees similar problems with its own flat gas tax revenue stream—to the point of calling it “antiquated” in S.B. 1077. 

By 2030, the California Legislature estimated in S.B. 1077 that as much as half of the revenue that could have been collected under the gas tax will be lost to fuel efficiency.  “The gas tax is an ineffective mechanism for meeting California’s long-term revenue needs because it will steadily generate less revenue as cars become more fuel efficient and alternative sources of fuel are identified,” the legislation states.

Drivers would pay the same rate per mile driven, regardless of where they drive in the state. Still, the new law states that any exploration of alternative revenue sources must take privacy considerations into account, especially with regard to location data. 

Oregon has included various privacy safeguards in its program, and California is calling for its technical advisory committee to do the same thing. Oregon has been working on various versions of its program for more than a decade, and now drivers have several choices for how they report and pay their road usage charges, depending on the technology they want to use.  Still, as of right now, Oregon’s program is voluntary. If raising the gas tax has been and continues to be politically difficult, is this kind of charge—which poses privacy concerns that are not in question under the gas tax—any more politically viable?

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should gas taxes be replaced with road usage charges?

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