Iowa EVs now pay two taxes where gas cars only pay one

Iowa is about to adopt an additional “electric fuel excise tax” on July 1, meaning EVs in the state will now pay “fuel” taxes two different ways, whereas gas cars only pay one – and both of these taxes are higher than what a gas car pays.

A large number of states have implemented misguided and excessive “EV fees” to “make up” for shortfalls in road budgets, with the theory that EVs are somehow skipping out on their fair share. Currently, in Iowa, gas taxes only pay for less than 40% of the state’s road budget, and the vast majority of road damage is done by trucks, not cars.

We’ve covered the reasons these fees are misguided many times before, not least of which because they are a cynical lobbying ploy by the oil industry to disadvantage an objectively better transportation option. But Iowa’s new effort takes the stupidity to the next level.

Iowa double-taxes EVs, and each one is higher than taxes on gas

Iowa’s new EV fuel excise tax, in effect starting July 1, will apply a 2.6 cent tax per kilowatt-hour of electricity dispensed into an EV battery.

Thankfully, the new tax doesn’t apply to residences. But anyone charging at a public or commercial station will now have to pay two taxes where a gas car driver only pays one when they go to a gas station. The other tax is the state’s $130/year registration fee for EVs, which was explicitly intended to replace gas taxes for EVs.

Not only do EVs have to pay twice as many taxes as gas cars do, but each of these taxes is higher than the tax for an equivalent gas car.

At $130/year, an EV is taxed at about the rate of the average 35mpg car, given Iowa’s average 15k miles driven per year. While 35mpg is more than the average gas vehicle, it’s far less than the average efficiency of an EV – most of which are rated at over 100 mpge.

So this one tax is already more than what an EV would pay if it used gas. But on top of that, the 2.6c/kWh is also more than the taxes on gasoline usage. At current average Iowa gas prices of $3.70/gal, the state tax of 30c/gal represents a tax of about 8%. But at average Iowa electricity prices of 14c/kWh, 2.6 cents is an 18% tax, more than double the percentage tax on gasoline.

Per mile, these taxes come out to about .8 cents for EVs and 1.2 cents for gas cars, but remember both that gas cars are taxed based on fuel use not miles (and EVs are much more efficient, so thus should pay much less tax), and that EVs are already paying a tax just for existing.

Finally, there’s even a third source of taxes that some EV drivers pay. Iowa has a “local option” sales tax for utility costs, which means in some parts of the state, electricity is already taxed by an additional 1%. This is a small tax, but it means that EV drivers are instead paying three taxes to the state of Iowa, whereas gasoline users only pay one.

This has nothing to do with road damage

Governments have attempted to justify these abusive taxes by claiming that EVs are causing road funding shortfalls that need to be filled. But Iowa’s EVs cause virtually none of the road damage in the state.

Iowa has 4,596,501 gas vehicles registered as of 2022, and as of April of 2022, had 9,400 EVs registered.

If these EVs drive the same amount as the average Iowa driver, that means they’ll pay about $1.1 million in EV fuel excise tax per year collectively. But Iowa’s Department of Transportation has a $4 billion budget, meaning this new tax will represent ~.027% of its total. At Iowa average road construction costs, this would pay for somewhere around 30 lane-miles of road construction. Iowa currently has a total 235,460 lane-miles of road.

Meanwhile, a fully-loaded semi truck does roughly 10,000 times more damage than an average passenger vehicle. These trucks are driven more miles, too, with an average of around 45k miles per year. So if a $130 tax is reasonable for an average 15k-mile/yr EV, then a $3,900,000 yearly tax should be reasonable for a truck that does 30,000 times as much damage. If one of those numbers seems high, then both of them should.

Besides, less than 40% of Iowa’s roads are paid for by gas taxes, with the majority coming from other tax sources – which EV owners already pay their fair share for.

If we want to argue that “fairness” in paying for road damage is what’s important, then all vehicles should pay an equivalent tax based on weight and mileage regardless of motive power (and additional taxes for the amount of pollution their operation causes as well).

Until then, this is not an issue of fairness – it’s an issue of wealthy fossil lobbyists trying to disadvantage a superior powertrain choice while its numbers are still small and there are few people to complain, with the goal of continuing to choke you to death with the effects of their product.

What’s actually costing Iowans more? Pollution

What actually does have drastic costs for Iowans is pollution. The IMF has estimated that fossil fuels cost the US $649 billion in health and environmental costs per year, and if we assume those costs are distributed evenly across the US population, that would mean Iowa loses about $6 billion due to fossil fuel pollution per year.

Much of that damage comes from automobile exhaust. Transportation is the largest-emitting sector in the US, and car exhaust is responsible for more smog-forming pollutants than any other source. We know that EVs can reverse those trends, and even a small amount of EVs can make areas healthier and that every electric car brings $10,000 in life-saving benefits.

And that doesn’t even account for the benefits of avoiding climate change, which will disproportionately affect the agriculture industry (Iowa’s most important industry) and where quick action could save the world tens of trillions of dollars.

But putting a dollar amount on those costs abstracts them and makes them feel less harmful. Those health costs aren’t being paid by your pocketbook, but by your lungs. It’s a shockingly big number, but it’s a number representing an even more shocking amount of misery foisted on you by the fossil fuel industry which has lobbied for these punitive taxes on its better competition.

The number obscures the misery of thousands or millions of Iowans with reduced quality of life, children whose possibilities will be limited by lifetime lung problems before they even get started with their lives, retirees who can’t enjoy their well-earned leisure due to visits to the doctor or being leashed to cumbersome medical devices, or the thousands per year whose lives are cut short from the poison we continue pumping into their lungs.

And with this law, Iowa is throwing its lot in with increasing the misery of its residents. Placing an abusive tax on a small number of those residents who’ve made a better choice and are being punished for it, making better choices less attractive, and harming its residents and its main industry in the process.