EV tax credits are widespread – but extra fees are just as common

Many countries are trying to nudge drivers to adopt electric vehicles. Yet they're also levying extra taxes on them. What's going on?

In late February, the Canadian province of Alberta announced that in 2025, it would implement an annual C$200 ($148; £157) registration tax for electric vehicles. Drivers will pay the tax in addition to existing registration fees. Several EV advocates oppose the additional fees, especially at a time when many policymakers in North America are working hard to entice drivers to go electric with tax credits for EV purchases.

The extra fee may dissuade consumers from buying an EV, but lawmakers say it's not a punitive action, but instead an attempt to spread the cost of maintaining roads. In Alberta, one of the biggest sources of consistent public revenue is a fuel tax charged before petrol is even shipped to a station. This money usually helps pay for roads, bridges and other public infrastructure. In the eyes of Alberta Finance Minister Nate Horner, the EV tax is simply a matter of fairness.

"Since EV drivers obviously don't pay a fuel tax, this tax will be their contribution to keep provincial roads maintained and to support other public services," Horner said following the budget's release. His government's budget also cited the weight of EVs – which tend to be heavier than their internal combustion engine (ICE) counterparts because of their electric motors and large batteries – as part of the government's decision. Heavier vehicles would need to pay for their share of road damage.

Other jurisdictions, particularly within North America, are taking this approach. The Canadian province of Saskatchewan, for instance, charges an extra C$150 ($111; £87) to register an EV. And in the US, 24 states impose a higher registration fee for EVs, ranging from $50 (£39) in Hawaii, to $200 (£157) in Texas. Six states – including Georgia, Iowa and Kentucky – also collect a tax at charging stations.

Some EV advocates view these fees as short-sighted.

"In the long term, there is absolutely no reason why EV drivers shouldn't pay their share of taxes. But we're at a point in time when we're trying to encourage the adoption of electric vehicles, and it obviously is counterproductive to that," says Tim Burrows, president of the Electric Vehicle Society of Canada. 

North American EV sales have grown steadily throughout the past 10 years, and as that growth continues – a record 1.2 million EVs were sold in the US in 2023 alone – automakers and advocates hope to achieve levels of mass adoption. Significant tax incentives are part of this: the US federal tax credit for EVs can be up to $7,500 (£5,892); and Canada's federal government covers up to C$5,000 ($3,693; £2,900) of the final price tag, with six provinces also offering bonuses of their own. 

Yet governments are often issuing these tax credits while simultaneously imposing additional registration fees.

The issue, according to Gil Tal, director of the EV Research Center at the University of California-Davis, US, is that these municipalities depend on fuel taxes to pay for public infrastructure and services. In 2020 alone, US state and local governments collected $53bn (£41.6bn) from these fees, according to the Urban Institute. Much of it is earmarked solely for road upkeep.

Some EV drivers dispute the notion that all EVs do more road damage than ICE vehicles. William York, a Tesla owner and executive director of the Electric Vehicle Association of Alberta, points out that plenty of EVs, such as the Tesla Model 3, weigh roughly the same as ICE cars like the BMW 4-series.

The fact the extra registration fees are the same across the board seems unfair to York: someone who drives a light EV like the Chevrolet Bolt hatchback a handful of times a year will end up paying the same amount of money as a frequent driver who owns an ultra-heavy EV like the Ford F-150 Lightning. "It's punitive in one case, and it's not punitive enough in the other," he says. "The $200 fee is just a blunt instrument that they applied to the industry."

Burrows says that while the registration fees on their own may not deter individual EV ownership, the cost is just one more psychological barrier to purchasing an electric vehicle. "I think that anything along those lines is a deterrent to adoption," he says.

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In the absence of a petrol tax, Tal says governments need to come up with a way to fund infrastructure upkeep. In the short-term, the easiest way to do that in the is to tax the ownership of EVs. "Even if you are pro-EV," he says, "you need to solve this funding hole that EVs create."

One possibility some EV experts and advocates alike float is a tax on mileage, where all drivers – regardless the type of vehicle they drive – pay according to how much they use the roads. The trouble with this system, says Tal, is that it runs into privacy concerns. Unlike the petrol tax, where fuel providers are charged before their petrol even leaves for a pump station, a mileage tax would require government regulators to track the distance driven by every motorist.

Regardless of what auto taxes do – and do not – look like in both the short-term and the long, the big puzzle to solve will be finding a tax that invites EV owners to adopt these cars, but also still ensure the right revenue comes in for governments. The discussions may rise beyond local municipalities and to a wider, global forum, where multiple stakeholders voice their stances.

Borrows believes there will be concessions no matter what, so the solution should prioritise what matters on a larger scale – and he argues it's sustainability. "There is a cost to everything we do," he says.

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