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Will You Be Taxed for Driving?

States, fearing that more energy-efficient cars mean less money to maintain roads, begin testing a mileage-based tax.
"America is only investing 40 percent of what it should be in surface transportation." -Joung Lee
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I was driving in Minneapolis several weeks ago when I heard on the local radio news that Minnesota would be conducting a study to research whether it made sense for the state to start charging drivers a mileage-based tax. The state's Department of Transportation was looking for volunteers who would use cell phones to track their mileage.

At the time, I was floored. Unfortunately, the state made its announcement the same week Apple and Google were busted for tracking cell phone locations. How can this be? I thought. The fact that the cellular carriers and big business can track our locations is bad enough. Who wants the government doing it, too?

After a bit of investigation, however, it turns out, I didn't know the whole story. Apparently, the federal and state DOTs have been looking into mileage-based tax, or what they like to call Vehicle Miles of Travel (VMT) fees, for quite a while and it has nothing to do with Big Brother. It has to do with potholes. And it has to do with a lack of money to fix them.

Every time you fill up your car with gas, a certain amount of your fuel bill goes to one of about 1,400 wholesale fuel distributors, which pays gas taxes earmarked for maintaining American highways and other transportation infrastructure. The problem that the federal and state governments started noticing several years ago is the inability of the current gas tax, which hasn't been raised since 1993, to keep up with the cost of maintaining the roadways.

According to Joung Lee, associate director for finance and business development for the American Association of State Highway and Transportation Officials (AASHTO), America is only investing 40 percent of what it should be in surface transportation.

Lee says when the gas prices spiked to $4 per gallon in 2008 people started driving less. Less driving meant less gas consumed, which resulted in less money for the roads. On top of that, the federal government keeps pushing automakers to make more fuel-efficient vehicles through Corporate Average Fleet Economy regulations, which is why we're seeing more hybrids and electric vehicles coming to market. While fuel-efficient vehicles are good for air quality and help to lessen our dependence on foreign oil, their drivers actually end up chipping in less money for the roads.

"If you have a Toyota Camry and you get 25 miles to the gallon, then you're paying the current federal gas tax of 18.4 cents to travel 25 miles. But if you have a Toyota Prius, then you're putting the same kinds of demands on the roadway in terms of adding traffic and general wear and tear, but paying half the amount that the driver of the Camry does," Lee says.

Paul Sorensen is associate director of the transportation, space and technology program at the RAND Corporation, a non-profit research firm headquartered in Santa Monica, California and has conducted extensive research about VMT on behalf of the National Cooperative Highway Research Program. He says eliminating the gas tax and implementing mileage-based tax—a huge undertaking—could be carried out in one of several ways.

First, the federal government could mandate the switch, although Sorensen says that's not likely considering it would require some degree of national consensus, which he wrote in his latest report to the NCHRP, is "an elusive goal." Another alternative, and one that appears to be showing some promise, is a model in which the states decide individually how, when and if to implement VMT fees. For instance, in addition to the pilot project Minnesota will be starting this summer, the state of Texas and the University of Iowa also have researched the viability of VMT fees. There's also talk that the I-95 Corridor Coalition, an alliance of transportation agencies, toll authorities, and related organizations from east coast states from Maine to Florida, is considering doing a multi-state study.

Oregon, which has been researching the subject for a decade, currently has a bill in its legislature that would allow the state to tax drivers of electric vehicles and plug-in hybrids, which pay none or little to support road maintenance.
A third way to get VMT going would be to foster a market for in-vehicle travel services, wherein GPS or cellular phone providers could track mileage and pay taxes right through the driver's account, but also offer services such as real-time traffic alerts, routing assistance, automated payment of parking fees, and pay-as-you-drive insurance. Incidentally, companies such as State Farm are already giving drivers in certain states who use OnStar breaks on their insurance premiums, depending on how much they drive.

Lukas van der Kroft, principal of Parnassa LLC and independent consultant to the telecommunications industry, is watching what happens with VMT fees closely and is a big proponent of the "connected car." "You have your computer on your desk. Your phone is now an app machine. And I think your car also increasingly becomes a platform for computing," he says.

He says there are 280 million cell phones in operation in America and roughly 240 million cars on the road, which represents an opportunity for cellular carriers to double the size of their market because they already have billing relationships established with drivers who use cell phones and have a good record of privacy protection.
About that.

Every single source I spoke with in the transportation community acknowledged that for some drivers, privacy is a real concern, even in spite of the fact that most people realize cellular companies can pinpoint a cell phone's location by triangulating tower signals. Apparently, like me, some people see tracking by the government as an entirely different animal.

Proponents for VMT fees seem to get that, and are tossing around several ideas that might make drivers more comfortable with moving away from a gas tax, including offering them both high and low-tech ways to report mileage, as well as using third-party enterprises to collect mileage information.

You might ask, why not have drivers simply report their odometer readings periodically? AASHTO's Lee says, while that's a reasonable idea, generally the feeling is that "people aren't going to be honest about it."

Why not have vehicle emissions testers add odometer-checking to their list of to-dos? The Rand Corporation's Sorensen says that's also a good idea, except some states don't do emissions testing and those that do may be on schedules that would make it too expensive for most people. "In California…you'd get smacked with a $800 to $900 bill every couple of years, which is a lot harder than paying a buck extra in taxes every time you fill your tank," he says.

As for how a mileage-based tax would affect SMBs that do a lot of driving, Sorensen says there's the potential that information collected from vehicles someday could lead to lower congestion if drivers are charged more for being on certain roads during peak hours. "Drivers who [would] benefit most from that are those that place the highest value on their time and that tends to be those who are engaged in business activity as opposed to leisure travel," he says. "So if we go one step further than VMT fees and we start to vary tolls by time and location I think businesses stand to be the winner."

Regardless of your feelings on the subject, you'll have some time to think about it. AASHTO's Lee says moving to a mileage-based tax isn't as easy as just flipping a switch and it will likely take at least 10 years for drivers to start seeing widespread implementation.

We're interested in hearing your views on mileage-based tax. How do you feel about paying by-the-mile to drive?

IMAGE: Getty
Last updated: May 12, 2011




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