Transportation

Virginia Backtracks on Its Hybrid Car Tax


(An earlier version of this story incorrectly implied that Virginia had no car tax. The effort to eliminate was eventually reversed under Gov. Mark Warner.)

A year ago, Virginia Republican Governor Bob McDonnell pushed through a massive overhaul of the state’s transportation system, changing how basic things like roads, bridges, and public buses get funded. Along the way, two strange things happened: Virginia became the first state to abolish its gasoline tax and the second to impose a special tax on fuel-efficient alternative vehicles—aka the Prius tax.

In a way, the move was forward-thinking. It headed off a problem that all states face when linking gasoline consumption to transportation funding. Since we’re driving fewer miles in more fuel-efficient cars, the gasoline tax is starting to look like an unsustainable primary source of transportation dollars. Coming up with a new way to finance roads and bridges made sense.

But singling out hybrids for a special kick in the pants? It was hard logic to swallow. The theory behind the tax is that since hybrids don’t consume as much gasoline as other cars, they don’t pay their share of road maintenance. That’s a fair point, though it should be noted that they also don’t tear up the roads as much as larger trucks and SUVs.

Also, the logic of a special hybrid tax fell to pieces as soon as McDonnell called to eliminate the state’s 17.5-cent retail gasoline tax, in essence severing the ties between gasoline consumption and transportation funding. It was eventually replaced with a 3.5 percent wholesale gasoline tax.

Though the initial plan called for a $100 annual fee on hybrids, a compromise ended up knocking it down to $64 a year. Not a crushing blow by any means but certainly enough to spark the ire of the owners of the 90,000 hybrids registered in the state—particularly the more liberal voters in the state’s affluent northern suburbs. On Monday, the Virginia State Senate voted to repeal the tax. The bill is now on its way to the Republican-led House of Delegates, which already passed a similar measure in subcommittee.

Though a bold experiment, the tax never made sense, both from an economic and political standpoint. It was supposed to generate only about $11 million in revenue, a rounding error considering McDonnell’s transportation package is projected to raise $1 billion in funding a year. And while the tax may have appealed to portions of the more conservative southern and western areas of Virginia, those voters by their nature should in theory oppose any sort of tax that singles out a particular behavior.

As well-intentioned as it may have been, Virginia’s hybrid tax was doomed from the start and, rightly or wrongly, will likely be remembered as a failed attempt by state conservatives to stick their finger in the eyes of greenies.

Philips_190
Philips is an associate editor for Bloomberg Businessweek in Washington. Follow him on Twitter @matthewaphilips.

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