Pennsylvania vehicle mileage tax being discussed to replace lost gas tax revenue

PennDOT relies on gas tax to fund 78% of its’ revenue needs, far more than neighboring states

With major gas-powered automakers transition to manufacture electric vehicles by 2035 and people driving less during the pandemic, PennDOT officials say the gas tax is no longer able to generate the money that is needed to keep the state’s transportation network in good repair.

PA Governor Tom Wolf charges the Transportation Revenue Options Commission to come up with ideas to phase out the state’s gas tax that is around 53 cents a gallon, the second highest in the nation.

With that in mind, the commission proposed phasing in an 8.1-cent-per-mile user fee over a five-year period, doubling the state’s vehicle registration fee, higher sales tax on vehicle purchases, an electric car fee, and a goods delivery fee taking advantage of online buying and delivery.

As we wait for TROC’s final draft, they hope it would begin at the time of the governor’s budget presentation in February 2022 with the goal of acting on it by July 1, 2022.

Rebecca Oyler of the Pennsylvania Motor Truck Association said the trucking industry would oppose the proposed doubling of vehicle registration fees, which will make the commonwealth have the second-highest truck registration fee in the nation.

What is a Vehicle Mileage Traveled (VMT) tax?

A VMT tax has become a popular option because it makes the taxes on road use fair across all vehicle types. Instead of paying gas taxes at the fuel pump or high registration fees, drivers would pay based on how much they actually drive and would capture electric vehicles that do not fill up at a station.

A vehicle miles traveled tax (VMT) charges motorists based on their road usage measured in mileage using an onboard vehicle telematics device to capture the distance driven by a vehicle through GPS.

A recent study in the Journal of Public Economics found that implementing a vehicle mileage traveled tax is a more efficient policy than raising the gas tax as VMT tax is designed to increase highway spending $55 billion per year and increases annual welfare by $10.5 billion or nearly 20% more than a gasoline tax does.

In Oregon, where their experiment with a vehicle-miles-traveled fee has been hailed nationally as a bold step toward what may eventually become a reality, lawmakers are considering a bill that would require owners of new, fuel-efficient cars and trucks to pay a fee for every mile they drive beginning in 2026.

Oregon has estimated its highway fund, of which 40% comes from gas tax revenues, will be insolvent by 2024 without significant action.

However, current gas taxes are simple to administer at the pump and can be adjusted using existing mechanisms while a VMT tax would require installing new telematic devices in all personal and commercial vehicles to track distance traveled.

Many assume that this would require every vehicle owner to periodically (or automatically) report distance tax and create a new bureaucracy auditing these reports, which could eat up any gains in tax revenue.

The Oregon House Bill addresses these concerns as the fee would apply only to owners of new 2027 vehicles that don’t use gas or get 30 miles or more per gallon of gasoline and drivers would be able to opt out of tracking their mileage and pay a flat annual fee of $400. However, the flat fee provision would expire in 2030.

California and Washington are considering linking a drivers’ VMT fee to a formula that factors in the fuel efficiency of their vehicles, which Tesla—the electric vehicle company—testified as their suggestion, as well as this “provides an incentive for people to buy more efficient vehicles and to drive them more efficiently.”

We will have to wait to see what happens in Pennsylvania, but the discussion is heating up and there is pressure to solve the lost gas tax revenues quickly.

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