I’m a pedestrian at heart: My preferred mode of transportation has been walking since the heady rush of that “I can drive!” feeling passed, and I’ve lived where it’s easy to get around on foot for much of my adult life. Since I don’t currently live in a walkable area, I’m not going to celebrate World Car-Free Day on Sept. 22 by not using my car. Instead, I’m going to devote time to researching cleaner, greener vehicles — and how tax applies to their sales.

There are an estimated 1.2 billion cars on world roads today, with approximately 2 million electric vehicles among them — more than double the amount on the roads in 2015. According to the International Energy Agency, “the current electric car market uptake is largely influenced by the policy environment.” Financial incentives such as direct rebates and tax breaks or exemptions “are essential for reducing the purchase cost and total cost of ownership gap between electric and conventional cars.” These enticing incentives are needed to encourage consumers to trade in their gas guzzlers. To be honest, a tax incentive would certainly help me make the switch.

The United States offers a federal tax credit of up to $7,500 for all-electric and plug-in hybrids. Many states also encourage the consumption of electric and hybrid vehicles with their own tax incentives, and additional incentives are sometimes offered by cities (e.g., Utrecht, in the Netherlands, and Beijing, China).

State incentives to go green

California has spent $430 million subsidizing low-emission vehicles since 2010. Now, however, FY 2016–17 funding for the state’s rebate project has been exhausted, and funding for the next fiscal year hasn’t yet been secured. As a result, only qualified lower-income applicants are receiving rebates as of June 30, 2017, and only until funds run out; all other applicants are being waitlisted. Rebates range from $900 for alternatively powered motorcycles, to $5,000 for fuel cell vehicles, to $20,000 for zero-emission commercial vehicles.

California sales and use tax on qualifying vehicles is not reduced by the rebate. Instead, it’s computed on the retail selling price. Additional information.

Colorado provides a state sales and use tax exemption for qualifying low-emitting heavy vehicles (those weighing at least 26,000 pounds). However, local sales taxes are due on these purchases unless cities, countries, or special districts exempt them by special ordinance.

Incentives have been available at the state level in Washington since 2009, though they’ve changed over the years. As of July 1, 2016, the state provides a sales and use tax exemption for the purchase or lease of a new passenger car, light-duty truck, and medium-duty passenger vehicle that is:

  • Powered exclusively by clean alternative fuels
  • A plug-in hybrid capable of traveling at least 30 miles using only battery power
  • On the list of qualifying vehicles as determined by the Department of Licensing

The exemption applies to the first $32,000 of a vehicle’s selling price or total lease payments. Washington will cease offering this exemption at the earlier of July 1, 2019, or once the total number of qualifying vehicles purchased since July 15, 2015, has reached 7,500. More details are available from the Washington Department of Revenue.

In New Jersey, zero-emission vehicles have been sales-tax exempt since 2004. To qualify, vehicles must be “certified pursuant to the California Air Resources Board.” Partial zero-emissions vehicles such as the Honda Civic Hybrid and the Toyota Prius aren’t eligible for the exemption.

Numerous states offer other types of tax incentives. For example, Connecticut offers CHEAPR (Connecticut Hydrogen and Electric Automobile Purchase Rebate), an incentive of up to $5,000 on the lease or purchase of eligible battery electric vehicles, fuel cell electric vehicles, or plug-in hybrids. The CHEAPR incentive may be considered taxable income.

State incentives to keep your gas-guzzling car

Since states often rely on fuel taxes to fund roads and public transportation projects, some are concerned that more green cars on the road will mean less revenue.

To counter this possibility, Oklahoma is instituting a plug-in electric vehicle fee as of Jan. 1, 2018. In addition to the normal vehicle registration fees, electric vehicle owners will be required to pay an annual fee of $100, while owners of plug-in hybrids will have to pay a $30 annual fee.

Effective Jan. 1, 2020, Oregon is imposing a $110 annual fee on all-electric vehicle owners, and a fee of $58 for medium-speed electric vehicle owners. Annual fees will also be imposed on other vehicles: $33 for those with a rating of 40 miles per gallon (mpg) or greater; $23 for vehicles with a rating of 20–39 mpg; and $18 for vehicles with a rating of up to 19 mpg.

World Car-Free Day was created to help make the world a greener place and to reduce congestion and fuel use, if only for one day. We would indeed have a cleaner, quieter planet without cars, but it’s hard to imagine us all willingly giving them up. It’s no wonder we could have as many as 2 billion vehicles on world roads by 2035, only 2.5 percent of which are expected to be battery electric, fuel cell vehicles, or plug-in hybrid.

Perhaps states are right to incentivize the purchase of alternatively fueled vehicles. It’s not for me to say. But I do know that sales tax exemptions can complicate compliance for businesses — and that tax automation software simplifies it.