Umair Gaines
Electric vehicles (EVs) have traditionally been exempt from sales tax in many states, but this is changing as governments seek to balance their budgets and address fiscal gaps in road funding. For example, New Jersey recently introduced a sales tax on EVs for the first time since 2004, with a rate of 6.6% by July 1, 2025. New York State also has a bill in the Senate that proposes to exempt the first $35,000 of the sale of an EV from sales tax, while also offering rebates and tax credits to incentivize the adoption of EVs. As the EV market continues to grow and technology advances, the tax landscape is likely to adapt to reflect these changes.
Characteristics and Values of Sales Tax on Electric Vehicles
| Characteristics | Values |
|---|---|
| Sales tax exemption | The first $35,000 of the retail value of the sale or lease of a battery, electric, or plug-in hybrid vehicle is exempt from sales tax in New York State |
| Tax credits | Buyers of new electric vehicles may be eligible for a tax credit of up to $7,500, while used electric car buyers may qualify for up to $4,000 |
| Rebates | The Drive Clean Rebate offers a rebate of $25 per mile of EPA-rated all-electric range up to $4,000 in New York State |
| Fees | Some states impose fees on electric vehicles, such as a $50 fee for standard hybrids and a $100 fee for plug-in hybrids |
| Local incentives | Some states offer local credits and/or rebates, such as an E-ZPass incentive with a one-time credit of $250 for fully electric vehicles and $125 for plug-in hybrids |
| Registration fees | Some states have higher registration fees for electric vehicles, such as biennial supplemental license fees of $120 and $60 |
| Road usage fees | Instead of an EV fee, users can opt to pay a road usage fee of 1 cent per mile driven |
| Charging station taxes | Utah imposes a tax on retail sales of electric current from electric vehicle charging stations |
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What You'll Learn
Electric vehicle sales tax exemption in New York
New York has introduced several incentives to encourage the adoption of electric vehicles. These include rebates for the purchase of electric vehicles through the New York State Energy Research and Development Authority (NYSERDA) and a reduction in tolling through the Clean Pass Program. The state also offers rebates for public and private entities to install Level 2 EV chargers at public parking facilities, workplaces, and multi-unit dwellings.
The NYSERDA Drive Clean Rebate Program offers rebates of up to $4,000 for the purchase or lease of a new eligible EV. The rebate amount varies based on the vehicle's all-electric range and manufacturer's suggested retail price. Additionally, disadvantaged communities can receive an additional rebate of $500 per Level 2 EV charger.
The NY State Senate Bill 2023-S5455 aims to amend the tax law by exempting the first $35,000 of the retail sale or lease of a new battery, electric, or plug-in hybrid electric vehicle from state sales and compensating use taxes. This legislation intends to encourage purchasers to choose electric vehicles by providing a long-term incentive. The bill also authorizes cities and counties to elect such exemptions.
The New York State Department of Environmental Conservation's (NYSDEC) Municipal ZEV Program offers rebates to cities, towns, and counties for the purchase or lease of eligible zero-emission vehicles (ZEVs) and grants for the purchase and installation of public ZEV fueling infrastructure. Rebates of up to $7,500 are available for ZEVs, and up to $500,000 for ZEV fueling infrastructure.
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Electric vehicle sales tax hike in New Jersey
Electric vehicles (EVs) in New Jersey were previously exempt from sales tax, but this incentive was removed in 2024. From October 1, 2024, to July 1, 2025, buyers of zero-emission vehicles will pay a 3.3125% sales tax. After that, they will pay the full 6.625% sales tax. This sales tax hike is expected to help raise revenue for the state budget and the Transportation Trust Fund, which funds infrastructure projects.
The removal of the tax break has been met with some criticism, as it is argued that this will make Gov. Phil Murphy's goal of having 330,000 plug-in EVs registered in 2025 more challenging to achieve. However, the state's budget still includes rebates of up to $4,000 for low- and moderate-income residents purchasing EVs, and federal tax credits of up to $7,500 are also available for EV buyers.
The increase in sales tax for EVs in New Jersey is part of a broader effort to transition to electric vehicles and reduce greenhouse gas emissions. New Jersey has set a goal of phasing out the sale of new gas-powered vehicles by 2035, and the state is also considering a gas tax hike to fund transportation infrastructure. This combination of incentives and disincentives aims to encourage the adoption of electric vehicles and promote sustainable practices.
While the sales tax increase may add to the cost of electric vehicles, some individuals, like Avison, believe that it won't deter people from purchasing EVs. The decision to end the sales tax exemption also comes as the state faces a budget gap, and the additional revenue from the sales tax on EVs is intended to contribute to closing that gap.
Overall, the electric vehicle sales tax hike in New Jersey is a complex issue that involves balancing the need for revenue, the promotion of sustainable transportation, and the potential impact on consumers. The state is navigating these factors to encourage EV adoption while also ensuring sufficient funding for transportation infrastructure projects.
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Electric vehicle tax credits and rebates
Electric vehicles (EVs) are eligible for tax credits and rebates at the state and federal levels. The federal government offers tax credits for new and used EVs, while some states offer additional incentives such as tax credits, rebates, and exemptions from sales tax.
Federal Tax Credits
The US federal government offers tax credits for new and used electric vehicles through the Internal Revenue Service (IRS). For new, qualified plug-in electric vehicles or fuel cell vehicles (FCVs) purchased in 2023 or after, you may qualify for a clean vehicle tax credit of up to $7,500 under Internal Revenue Code Section 30D. The vehicle manufacturer suggested retail price (MSRP) cannot exceed $80,000 for vans, sport utility vehicles, and pickup trucks. To claim the credit, file Form 8936, Clean Vehicle Credits, with your tax return and provide your vehicle's VIN.
For used clean vehicles, you may still qualify for a tax credit, but the amount will depend on the vehicle's qualifications and the date of purchase. The minimum credit for a vehicle with a minimum of 7 kilowatt-hours of battery capacity is $3,751.
State Tax Credits and Rebates
In addition to federal tax credits, some states offer their own incentives for purchasing electric vehicles. For example, New York State has proposed legislation to exempt the first $35,000 of the retail value of a new battery, electric, or plug-in hybrid vehicle from sales tax. This exemption would encourage purchasers to choose electric vehicles over traditional gas-powered cars.
Some states also offer rebates for electric vehicle purchases. For example, the Drive Clean Rebate program in New York offers a rebate of $25 per mile of EPA-rated all-electric range, up to $4,000. To be eligible for this rebate, the vehicle purchaser must be a New York State resident and agree to the program's terms and conditions at the time of sale or lease.
Other Incentives
In addition to tax credits and rebates, there are other incentives for electric vehicle owners. For example, some states offer reduced registration fees or exemptions from road usage fees for electric vehicles. Installing an electric vehicle charger at your home may also make you eligible for the Alternative Fuel Vehicle Refueling Property Tax Credit, which can reduce the costs associated with purchasing and installing charging equipment.
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Electric vehicle registration fees
Electric vehicles (EVs) and hybrid vehicles currently make up less than 1% and 2.8% of all vehicles in operation, respectively. However, their share of sales is increasing. To make up for the traditional motor fuel tax revenue not received for these vehicles, 39 states have imposed separate fees on EVs, hybrid vehicles, or both.
The fees for EVs and hybrid vehicles vary from state to state. For example, Colorado charges a $50 flat fee, while Oregon charges a flat fee plus a miles-per-gallon fee (for a 2-year registration: ≤19 mpg, $126; 20‒39 mpg, $136; 40+ mpg, $156 or $86 if participating in a pay-by-mile program). South Dakota charges based on weight and age, while Wyoming charges a flat fee plus a percentage of the factory price and age.
Some states have introduced incentives to encourage the adoption of electric vehicles. For example, New York has a rebate for the purchase of electric vehicles through the New York State Energy Research and Development Authority and a reduction in tolling through the Clean Pass Program. There is also a bill in the New York State Senate that may provide an electric vehicle sales tax exemption for the first $35,000 of a battery, electric, or plug-in hybrid electric vehicle.
It is important to note that the terms used for EVs and hybrid vehicles are not consistent across states, and some states apply fees to all vehicles using fuels not classified and taxed as motor fuels. Additionally, some states adjust their fees annually for inflation.
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Electric vehicle sales tax incentives
Electric vehicles (EVs) are generally subject to sales tax, but there are often incentives and exemptions available for consumers. These vary by state and are subject to change as the EV market evolves. For example, New York State has proposed a bill to exempt the first $35,000 of the retail value of a battery, electric, or plug-in hybrid vehicle from sales tax. This bill aims to encourage the purchase of electric vehicles by reducing the tax burden on consumers.
In addition to potential sales tax exemptions, there are also tax credits available for the purchase of electric vehicles. The federal government offers tax credits for the purchase of new and used electric vehicles, with a maximum credit of $7,500 for new vehicles and $4,000 for used vehicles. These credits can be claimed on tax returns or transferred to a dealer for an immediate discount. The Inflation Reduction Act (IRA) has also made it easier to purchase electric vehicles by providing tax credits for both new and used EVs, including cars, trucks, SUVs, and vans.
Some states offer additional incentives to encourage the adoption of electric vehicles. For instance, some states offer rebates or local credits for the purchase of electric vehicles, which can further reduce the cost for consumers. These rebates and credits may have certain conditions, such as income or price caps, and may vary by state and vehicle type.
It is important for consumers to stay up to date with the latest tax policies and incentives, as they can change over time. Additionally, it is worth noting that some states may impose higher registration fees or taxes on electric vehicle charging stations, which can impact the overall cost of owning an electric vehicle. Overall, the current tax incentives for electric vehicles aim to promote the adoption of more environmentally friendly transportation options.
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Frequently asked questions
No, New York has a number of incentives to encourage the adoption of electric vehicles, including a rebate for the purchase of electric vehicles through the New York State Energy Research and Development Authority, a reduction in tolling through the Clean Pass Program, and a bill to exempt the first $35,000 of a battery, electric, or plug-in hybrid electric vehicle from state sales and compensating use taxes.
Yes, as of October 1, 2024, New Jersey has implemented a sales tax on electric vehicles, which will increase from 3.3% to 6.6% by July 1, 2025. This is in addition to an annual registration fee of $250 for 2024, which will increase by $10 each year until 2028.
No, Washington is one of two states, the other being New Jersey, that exempted EVs from sales taxes.
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