New Jersey takes lead in ‘punishing’ EVs with $250 road tax

New Jersey, the US’s ‘Garden State’, is imposing the highest road tax on electric vehicles nationwide, requiring a $250 fee yearly, increasing by $10 each year to top off at $290 in 2028. The money is used for the state’s Transportation Trust Fund to maintain roads, railways, and bridges.

While EVs worldwide are mostly exempted from road taxes to encourage the energy transition, this is an example of what EV-drivers are to expect to compensate for the loss of revenue on fossil fuel taxes.

Taxes on gasoline and diesel

New Jersey Governor Phil Murphy, a Democrat who has been in office since 2018 and served as the US ambassador to Germany under Obama, signed a reauthorization of the state’s transportation trust fund. That fund, with the state’s taxes on gasoline and diesel cars, adjusts automatically, depending on whether it reaches a $2 billion revenue target.

‘Murphy’s law’ raises this target to $2.37 billion by July 2028. As EVs don’t pay fuel taxes, they will now have to pay a yearly ‘registration fee’ of $250 to start compensating from July 1st. And for new EVs, that tax will be paid four years upfront, thus adding 1,060 dollars extra to the purchase price of an EV, which is already significantly higher than for ICE cars currently.

The higher purchase price is already the main reason why many potential private car buyers are reluctant to buy an EV right now. Critics say Murphy’s decision will force EV owners to pay twice as much in this alternative ‘gasoline tax’ as the owners of a comparable combustion vehicle.

Reducing EV sales by 10%

And that’s not to the liking of New Jersey residents, as InsideEVs author Tom Moloughne writes. “As a lifelong resident of New Jersey as well as a long-time EV owner, it pains me to see the state initiate what I consider an unreasonable tax on clean-energy vehicles so prematurely.”

“I say prematurely because I have always maintained that electric vehicles should pay their fair share of road taxes, which help fund the state’s infrastructure repair and development.” He thinks $100 would be fair when EVs make up 5% of the state’s car fleet (which is 1.8% currently), increasing to $125 when EVs account for 10%.

According to ChargEVC, a non-profit organization that provides research and advocates for EV market development programs and policies, “a 2020 nationwide survey of current EV owners by UC Davis concluded that a $100 annual registration fee on EVs would reduce sales by over 10%.”

Funding state infrastructure

The EV fee is expected to bring in $61.3 million (€56.6 million) in the first year starting July 1st and $207.4 million by fiscal year 2029. The New Jersey governor is convinced this money is needed to keep the state’s infrastructure functional.

“America depends on the strength of New Jersey’s transportation system,” Murphy said. “If our infrastructure falls behind, our entire economy falls behind, and worst of all, our families would pay the highest price in the forms of costly delays and missed opportunities.”

On its official website, New Jersey states that it is leading the way in electric vehicle (EV) adoption on the East Coast and will ban the sales of new combustion engines from 2035, like in Europe. Governor Phil Murphy has already set a goal of registering 330,000 EVs in New Jersey by 2025.

EV incentives

It’s not that New Jersey is trying to discourage EV uptake. On the contrary, for the past twenty years, residents who buy, lease, or rent a new or used electric vehicle have been exempt from a 6.625% sales tax. However, over the next three years, this tax break will be phased out, and the state will start to prioritize EV incentives.

In 2020, Garden State established a ten-year major EV incentive program for state residents known as the Charge Up New Jersey EV incentive. When buying a new battery-electric vehicle (BEV) with a list price under $45,000 (€41,400) at a participating New Jersey dealership, people are eligible for a $25 rebate on the purchase price per EPA-rated mileage range, up to $4,000 (€3,693). For EVs costing up to $55,000, the rebate is $25 per EPA-rated mileage range up to $2,000.

In addition, New Jersey residents can also take advantage of the federal clean vehicle tax credit, which is worth up to $7,500 for qualifying vehicles and participants.