We often get questions about the mileage tax and the gas tax. This article will explain what these are. We’ll also dive into what proponents and opponents say about these taxes and the impact it may have on you.
What is the gas tax or fuel tax?
The government imposes the fuel tax on gasoline and diesel sales. Gas tax revenue is supposed to pay for building and maintaining the nation’s transportation infrastructure.
The fuel tax includes a federal tax and state taxes. The federal tax for gasoline has been 18.4 cents per gallon since 1993. State gasoline taxes vary. Keep in mind, states can also impose other fees and taxes at the pump. This is why gas prices in say, San Francisco, California are different than in a place like Atlanta, Georgia.
What is the mileage tax?
The mileage tax—sometimes referred to as a Vehicle-miles Traveled (VMT) tax—is being proposed in various states. This would charge taxpayers a fee based on the number of miles they drove for a given year.
The specific rate varies by state but the essential idea would be a “pay-per-mile” system. The tax revenue would then go into building, maintaining, and repairing roads and infrastructure.
No state has fully implemented a mileage tax for regular vehicles. California, Colorado, Connecticut, Delaware, New Hampshire, Pennsylvania, Oregon, Washington and others are studying this or have implemented pilot programs.
The specifics of how a mileage tax would work aren’t clear but one pilot program gives us an idea of how it might work. The Oregon pilot program is called OReGO and is on a volunteer basis for now. Under this plan, volunteers:
- Pay a road usage charge for the amount of miles they drive instead of a fuel tax
- The rate is 1.5 cents per mile
- Those paying mileage tax receive credit on their bills for fuel taxes they pay at gas stations
- Taxpayers can log miles in various ways (handwritten logs, GPS device or apps).
The plans and rates in other states are still in the planning stages. But, the Oregon program could be a framework for how other states approach a mileage tax. Other states are testing tracking drivers and sending out “invoices.”
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Why are states considering the mileage tax?
Officials say American infrastructure needs more revenue than what is coming from fuel taxes. California Governor Jerry Brown recently said there’s a $59 billion backlog of maintenance needed and the revenue from gas taxes won’t be enough to cover it, according to the Mercury News. California isn’t alone—many states are facing infrastructure issues and not enough funding from traditional gasoline taxes.
Arguments for mileage tax
The main arguments for a mileage tax center around revenue and fairness.
Supporters say the wider adoption of more fuel-efficient vehicles has reduced taxable gas consumption. Additionally, there has been no rise in the federal gas tax in more than 20 years. Supporters say there’s simply not enough revenue to maintain the infrastructure or to build the next generation of transportation infrastructure.
Jennifer Cohan, Delaware’s secretary of transportation, told The Washington Post that “reliance on the gas tax as a major contributor to funding transportation is no longer a viable option.”
Organizations like the Mileage-Based User Fee Alliance argue usage-based taxes on the road are fairer. This turns roads and bridges into utilities like electricity or water: the more you use it, the more you pay.
Arguments against mileage tax
Even if you think the transportation infrastructure needs an upgrade, not everyone believes this is the best way to do it. The main arguments against a mileage tax center around privacy, fairness and revenue.
Polls suggest people don’t like the government knowing where they come and go. They especially don’t like it when it’s tied to taxation.
Many are concerned about how the government would collect this data. Others fear how the data would be stored, as well as other purposes this information would be used for.
Another argument against a mileage tax is that it’s not fair. Some people specifically purchased a high-efficiency vehicle to avoid gas costs and gas taxes. Mike Moffatt at About.com, says raising state or federal gas taxes would be a better approach. In his view, mileage taxes have all the negative impacts of a gas tax with none of the positive impacts.
Over at Bloomberg, Stephen L. Carter says a mileage tax may not even raise the revenue its promising. As much of 40 percent of the revenue generated by the mileage tax could go to private vendors, he said. Factoring in all the kinks of collection, a mileage tax might not produce as much tax revenue as the existing (or raised) gas tax.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.