Could a Vehicle-Miles-Traveled Tax Be a Good Replacement for the Gasoline Tax?

February 10, 2011 — The gasoline tax, long the backbone of Virginia's highway funding, could become less and less productive with more fuel-efficient vehicles on the road. New and fair ways to spread the cost will have to be found, an authority on transportation economics writes in the current issue of the Virginia News Letter, published by the University of Virginia's Weldon Cooper Center for Public Service.

Greater fuel efficiency in new vehicles and the increasing use of alternative fuel vehicles will cause revenue from the motor fuels tax (primarily on gasoline, but also including diesel), the largest revenue source for building and maintaining highways, to stagnate and fall, predicts George Hoffer, professor emeritus of economics at Virginia Commonwealth University and senior lecturer at the University of Richmond.

"The long ride using the gasoline tax as a strong revenue generator has come to an end," he writes.

But with electric, hybrid and other highly efficient vehicles traveling the roads, new construction and maintenance will still be needed. Higher gas prices, but primarily stronger federal mandates, will lead to the more efficient vehicles.

In his article, Hoffer examines the pros and cons of a widely studied alternative form of a user tax – a vehicle miles traveled tax, or VMT tax that takes into account increased efficiency and lighter vehicles.

Such a tax could be employed similarly to the way electric companies charge for power usage – "the more you use the service, the more you pay," Hoffer writes. But he concedes that it faces a major concern that could keep it from being adopted: "For the tax to work, your vehicle's mileage would have to be monitored."

Hoffer writes that a VMT tax need not be a tax increase if it were used to replace the three major road user fees: the motor vehicle fuels tax, the annual registration fee, and the 3 percent sales tax on new and used vehicles.

There have been promising studies of the usefulness of a miles-traveled tax in other states, but the Virginia General Assembly has avoided even studying it, Hoffer writes.

"In its 2010 session, the legislature failed to authorize an in-depth study by VDOT's research arm, the Virginia Transportation Research Council, even though VRTC had prepared a detailed annotated bibliography on the subject in 2008 as a part of the commonwealth's Long Range Multimodal Transportation Plan. In rejecting the proposed study, several members of the House voiced concern that their vote in support of a joint study committee would be interpreted by their constituents as favoring a VMT tax."

As one example, Hoffer outlines a proposal "similar to today's electric company bills," where drivers would receive a monthly statement with two components: a fixed charge and a variable charge. The fixed charge would be for having a registered vehicle (the license plate registration) and the variable charge would be for the use of roads based on monthly miles traveled.

The current gasoline tax has been a de facto vehicle-miles tax, because the more you drive, the more you pay, "with motor fuels being the metering device."

He suggests several ways the fee per mile could be structured for efficiency and fairness. For example, it could vary by region of the state, with rural areas and their long commutes getting a break. It could vary by type of road surface and vehicle weight. On heavily congested roads, the fee could vary depending on time of day to discourage excess demand. And, Hoffer adds, the fee per mile could even be used to fund regional public transit.

Such a tax would probably have to be based on a GPS system, Hoffer writes. "To implement it, the General Assembly would mandate that each Virginia registered vehicle, given adequate lead-time, be equipped with a commonly configured GPS device as a condition for registration."

He notes there is precedent for the requirement since 50 years ago the General Assembly mandated new cars have front seat belts before federal standard required them. Also, current state mandates include liability insurance or payment of an uninsured motorists fee and annual vehicle safety inspections.

"The GPS user fee collection mechanism also would have positive law enforcement implications for stolen vehicles, drunk driving, uninsured motorist enforcement, and police chases, to name a few violations."

But the concerns such a monitoring system raise about privacy mean that it has a high hurdle to overcome to ever be adopted, Hoffer concedes. It would add to the number of privacy intrusions that citizens already face. Drivers can already be monitored through "smart tags" that record toll road usage, cameras at some stoplights, cell phones and technology in almost all new vehicles that records driver behavior.

"The monitoring of vehicle use for legitimate and fair tax purposes, as well as for criminal law enforcement purposes only, could be considered an incremental intrusion into privacy, given the loss of privacy that already has been given to telephone, satellite and Internet technology systems," Hoffer writes.

Until neighboring states or the federal government adopted a similar system, Hoffer suggests, Virginia could retain a low tax on motor fuels to encourage nonresidents to over-purchase Virginia-taxed fuel, tending to offset their non-payment of a VMT fee.

Another approach to raising transportation revenue would be to increase the gasoline tax, Hoffer notes. "This suggestion is extremely shortsighted as it ignores the basic problem of what we face now and what is coming. Note how the General Assembly has rejected this avenue for over 20 years. However, higher gasoline taxes are what the Transportation Research Board recommends, at least in the short run. More recently, the Federal Deficit Reduction Committee has recommended a gradual $0.15 per gallon increase."

"Alternatively, transportation revenue could be increased by imposing an odometer mileage fee collected as part of state safety/emissions inspection. Problems include odometer fraud issues and collection issues. If collected annually, or even biannually, the absolute level of the fee would present an affordability problem for many motorists. Also, it would be difficult, if not impossible, to impose the fee on out-of-state vehicles unless there was a cooperative arrangement with other nearby states."

A VMT tax raises many philosophical and transition issues, Hoffer concludes. But if adopted, it would be "a 21st-century metering device to cover the costs of building and maintaining the public highway infrastructure. It replaces the de facto VMT tax that we have used for generations."

— By Rebecca Arrington

Media Contact

Rebecca P. Arrington

Assistant Director of Media Relations Office of University Communications