Avalara Tax Changes 2024

Energy and fuel tax changes

Avalara Tax Changes 2024

Energy and fuel tax changes

What energy and fuel tax changes are happening in 2024?

What’s fueling tax changes for the energy and fuel industries in 2024? Much like the 1983 Marcia Griffiths hit dance song, it’s electric.

The call for climate change action is inspiring governments worldwide to mandate alternative energy solutions, which include electric vehicles and energy smart appliances. Still, some lawmakers are pushing back.

No matter what’s powering the vehicles on the roads, most states agree it should be taxed. Concern over the loss of fuel tax revenue is driving states to seek alternative ways to pay for roads and highways.

And the growing market for electric vehicles means there are thousands of new jobs up for grabs at car and battery manufacturers, and states are willing to pay big bucks to be part of the electric vehicle (EV) revolution. 

What the numbers tell us about the energy and fuel industries

Line chart detailing the increase in U.S. public electric vehicle charging ports since 2012


Graphic showing the decrease in fossil fuel demand per the IEA’s net zero scenario


Graphic showing 8 out of 10 passenger car sales in Norway were all-electric vehicles in 2022


Graphic showing energy business survey respondents find maintaining accuracy of tax liability calculations to be challenging

The push for clean energy and energy tax credits

The appetite for renewable energy is expected to rise in the coming years. According to the World Economic Forum, renewable energy will account for 35% of the power generated worldwide by 2025. And for the first time, renewable sources are predicted to exceed one-third of the total global power supply in 2024.

Chart detailing the breakdown of global electricity supply


A sunny day might soon give us much more than happy houseplants and an excuse to head outside: The solar industry expects to add 32 gigawatts of solar power production capacity in the United States in 2023.

Some of the increased demand is fueled by the Biden administration. In September 2023, the U.S. Department of Energy finalized energy efficiency standards for household appliances like gas furnaces. These new standards take effect in 2028, replacing the most recent standards passed in 2007, and are predicted to reduce carbon emissions by 332 million metric tons over 30 years. And the Inflation Reduction Act of 2022 allocated about $370 billion for improving energy security and clean energy transitions. Many of those funds are going toward clean energy tax credits, like an energy-efficient home credit and a sustainable aviation fuel credit. We can expect the IRS to issue guidance on these credits.

The International Energy Agency expects that the electricity generated from fossil fuels will decline over the next two years. Natural gas-fired electricity generation is expected to drop, despite a dip in natural gas prices.

Electric vehicle mandates

Electric vehicle mandates are sweeping the globe. Numerous countries, including the United States and the European Union, will have 100% electric vehicle or zero-emissions vehicle mandates by 2050. For instance:

  • Norway plans to phase out internal combustion engine (ICE) vehicle sales by 2025
  • Iceland plans to ban new registrations of diesel and gasoline vehicles after 2030
  • The United Kingdom plans for all new cars to be zero emission vehicles (ZEV) by 2035. The ZEV mandate requires “80% of new cars and 70% of new vans sold in Great Britain to be zero emission by 2030, increasing to 100% by 2035.”
Chart detailing which countries have a policy mandating 100% EV sales by 2035


The United States also has eco goals. On the federal level, it plans for 50% of new vehicle sales to be electric by 2030, and to put the country “on a path to net-zero emissions by no later than 2050.” California, Massachusetts, New York, and several other states are working to prohibit sales of new passenger car and light truck gasoline vehicles by 2035.

Powering all these electric vehicles will take electricity, of course, and the machines that charge such vehicles. Equal access to charging stations is essential, if challenging to provide. States are studying the issue. For example:

  • New Hampshire: The Committee to Study Electrical Vehicle Charging for Residential Renters was created in 2023 to study accessibility and opportunities to provide electrical vehicle charging for residential renters.
  • Pennsylvania: The House Environmental Resource and Energy Committee is considering HB 1474, which adds electric vehicle charging infrastructure projects as an eligible project type under the Pennsylvania Commercial Property Assessed Clean Energy (C-PACE) program.

According to the White House, the U.S. is on track to install 1.2 million public chargers by 2030 and all 50 states, plus Puerto Rico and Washington, D.C., are participating in the National Electric Vehicle Infrastructure program (NEVI), “a $5 billion initiative to create a national network of high-speed EV chargers along major highways and interstates.”

Although the federal government and numerous state legislatures are working to increase EV adoption, about 19 states are against EV mandates. Oklahoma and Wyoming are actively pushing back against the proposed mandates.

Map of the United States highlighting which states are pushing back against California’s EV mandates

Electric vehicle incentives

It will be easier for consumers to reap the benefits of federal clean vehicle credits beginning January 1, 2024. Under the Inflation Reduction Act, consumers can immediately lower the purchase price of a qualifying vehicle by transferring their new clean vehicle credit (up to $7,500) and previously owned clean vehicle credit (up to $4,000) to a car dealer.

Fuel tax updates: Old fuels, alternative fuels, let’s tax them all

Earlier this year, several states raised the tax rate on gasoline and diesel. Some states are also expanding the fuel tax to include renewable energy. 

Graphic showing which states are changing fuel tax rates

SOURCE: Transport Topics

In contrast, Georgia Governor Brian Kemp signed an executive order extending the state’s suspension of excise tax on motor and locomotive fuel. The suspension remained in effect until 11:59 p.m. on November 11, 2023.

Meanwhile in California, the sales and use tax rate for diesel was lowered to 9.0625% in October 2022, but returned to its normal rate of 13% on October 1, 2023. 

Taxing electric vehicle charges

There are currently about 140,000 public charging stations in the United States, which isn’t nearly enough to get Americans out of their gas-powered automobiles. So, in February 2023, President Biden announced a plan to build “a convenient, reliable, and user-friendly national network of 500,000 EV chargers by 2030.” This will be critical if EVs are to make up at least 50% of new car sales by 2030, as is the current plan.

Many U.S. roads and highways are funded by gasoline taxes, and states are concerned about losing that revenue if drivers go electric — to the tune of $25 billion annually. Some states are looking to make up for that lost revenue by taxing electric vehicles, electricity used to charge EVs, or imposing additional fees on EV purchases:

  • Kentucky just passed a bill that imposes a new excise tax on electric vehicle power distributed by an electric power dealer to charge electric vehicles beginning January 1, 2024. There are also annual electric vehicle owner registration fees. 
  • Washington, D.C. is considering eliminating an excise tax exemption for electric vehicles passed in 2018 and taxing all vehicles at a minimum rate of 6%.
  • Utah’s House Bill 301 imposes a tax on the sale of electricity used for EV charging and amends registration fees based on the weight of the vehicle (EVs tend to weigh substantially more than their gas-powered counterparts). 
  • Many states, including California, Michigan, Texas, Washington, and Wyoming are charging an additional registration fee for electric vehicles.
Graphic detailing the revenue estimate for a new proposal to eliminate an EV tax exemption


Perhaps those states looking to fund roads and highways could take a few pages from Europe’s books. While car-per-capita rates in larger European countries are, for the most part, significantly lower than in the United States (908 cars in the U.S. per 1,000 people versus 668 cars per 1,000 people in France), the European Union uses taxes to reduce reliance on motor vehicles. In Amsterdam, drivers pay a value-added tax (VAT) of 21% on their car purchases, a one-time tax dependent on a vehicle’s CO2 emissions, and a road tax based on the vehicle’s weight, type, and fuel need. Plus countries like the Netherlands and Spain levy high fuel taxes.

Taxing miles traveled

As EVs increase in popularity and gas tax coffers dwindle, it’s clear states need to find another source of income. Some states have even piloted a vehicle miles traveled (VMT) tax; Oregon permanently instituted a VMT fee in 2015 that allows drivers to opt in and pay 1.8 cents per mile and get a credit against gas taxes paid. Not to be outdone, Oregon’s neighbors to the north in Washington state’s transportation commission are recommending a VMT of 2.5 cents per mile through a voluntary program to begin in 2025. Other states with voluntary VMT fee programs include Hawaii, Utah, and Virginia.   

Diesel and gas taxes in Europe

After extreme energy price increases in 2022, many European countries established temporary fuel tax reductions. European gas and diesel taxes have mostly gone back to pre-Russia-Ukraine war rates. Taxes on gas and diesel continue to press public policy throughout Europe. As the European Union, like the United States, makes environmentally conscious public policy changes, fuel tax changes will likely be central to policy discussions. 

Where you build them matters: Race to win EV factories

Someone is going to have to build all of those electric vehicles, and states are vying to be the next home of EV manufacturing. States like Georgia, Illinois, North Carolina, and Michigan are offering land, tax breaks, and other incentives to lure new factories from existing companies and EV startups. 

  • General Motors and battery manufacturer Ultium Cells announced in January 2023 that they would spend $7 billion to build electric vehicles in Michigan. The Great Lakes State in turn is giving $824 million in incentives, including grants, tax breaks, and electric grid upgrades. 
  • Georgia is becoming a capital of EV manufacturing with a new $5 billion Rivian plant. The Peach State incentivized the American electric car manufacturer with a “mega tax credit” of $5,250 per job for five years, workforce training, and a new highway interchange near the project. 
  • Oklahoma will be home to the first electric vehicle factory from startup Canoo, thanks to about $300 million in incentives like land and infrastructure improvements. 
  • Illinois, Kansas, and North Carolina are all bidding to be the next homes to battery and EV factories, and are offering tax breaks and other incentives.

What’s happening with the Superfund in 2024?

President Biden’s initial Fiscal Year 2024 budget, introduced in March 2023, provides more than $350 million for the Superfund program to clean contaminated land and respond to environmental emergencies and natural disasters. An estimated $2.5 billion in Superfund tax revenue would also be available to the Environmental Protection Agency (EPA) in 2024. Total budgetary resources for the Superfund program would be approximately $2.9 billion in 2024, considerably more than the $1.7 billion available in 2023.

Graphic detailing how much President Biden’s FY 2024 budget revenue will go toward cleaning contaminated land initiatives

SOURCES: EPA, The White House

But that was then. As happens all too frequently, the proposed budget wasn’t approved when the new federal fiscal year began on October 1, 2023. 

Retail delivery fees can close the fuel tax gap

Colorado has one in effect, Minnesota will have one effective July 1, 2024, New York tried to get a retail delivery fee (RDF) enacted last year, and other states, including Washington, are exploring the idea. These fees tend to apply to deliveries of taxable items made via motor vehicle and are another creative way states are making up for fuel tax revenue shortfalls. Learn more about retail delivery fees in the retail section

Grocery receipt graphic calculating the Colorado retail delivery fees


What else could affect the fuel and energy industries in 2024?

Catalytic converter theft is a big problem across the country, and the Golden State is aiming to put a stop to it with a proposed bill that allows law enforcement to charge people with illegal automobile dismantling if they’re caught with nine or more stolen converters. While the obvious benefits of this suggested bill are economic, it could have the added benefit of reducing air pollution in California.

Texas is fighting crime when it comes to the unlawful acquisition of motor fuel with House Bill 3651. This bill amends provisions related to motor fuel taxes and makes it easier for prosecutors to charge criminal activity. It also broadens the definition of “motor fuel” beyond those products that power gasoline and diesel engines. 

The Lone Star State is also exempting nonprofit food banks from motor fuels taxes. Texas House Bill 3599 exempts nonprofit food banks from having to pay motor fuel taxes on purchases for a vehicle owned by the nonprofit food bank and used to deliver food. It also entitled nonprofit food banks to claim a refund for any taxes paid for gas and diesel used in a qualifying vehicle. 

No matter how the fuel and energy industries shift over the next year, you can count on us to track tax changes and help you gauge what they mean for your business.

How Avalara can help

Excise tax compliance is challenging for businesses in the energy and fuel sector because excise taxes vary by state and can change quickly. Avalara energy industry solutions can help you create efficiencies and reduce audit risk.

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Avalara Tax Changes 2024

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