TO:
EVAZ Stakeholder Group
Date:
FROM:
Dean Howard
EVAZ Facilitator
SUBJECT:
Arizona Vehicle License Tax and Electric Vehicles
September 15, 2015
BACKGROUND
The Arizona Electric Vehicle Stakeholder group (EVAZ) was created in 2011 to assist Arizona Public
Service (APS) in their efforts to monitor and report on the Arizona electric vehicle (EV) market. In
cooperation with Salt River Project (SRP) and Tucson Electric Power (TEP), a stakeholder process was
created to advance an understanding of the opportunities and barriers that EVs face in our local market.
In conjunction with key stakeholders, the EVAZ identified their primary objective to remove or minimize
any barriers that slow or restrict the growth of the EV transition.
In 2014 the EVAZ Stakeholder group developed an additional set of objectives designed to identify
trends in the industry and identify local policy objectives that could correct any barriers to the EV
industry or future infrastructure needs. The team developed a 12-month plan to execute those
objectives through a series of outreach meetings with an annual report summarizing the findings and
outlining future objectives and engagement. The result of those efforts created the following policy
objectives:
A. Develop preemptive alternatives to the existing gas tax and avoid an onerous fee that is
developed without input from the EV community.
B. Identify method of allowing utility owned charging stations.
C. Modify the current Vehicle License Tax formula to impact the initial purchase price of an EV.
D. Allowing flexibility and standardized local permitting and zoning requirements for charging
station infrastructure.
This report will focus on Objective A by outlining the issue and recommendation to develop a modified
Vehicle License Tax (VLT) formula to increase the adoption rate of EVs in Arizona.
THE ISSUE
The national electric vehicle market has grown from 345 electric vehicles sold in 2011 to over 120,000 in
2014. This unprecedented growth is attributed to a number of factors that vary depending on who is
actually purchasing an EV. Issues such as the cost of fuel, practically zero maintenance, environmental
and health benefits, are attracting more buyers.
As a new transportation technology, EVs have to overcome a number of barriers to gain widespread
adoption. One of the greatest barriers to EV adoption is higher upfront capital cost relative to gasoline
vehicles. Many of the best selling EVs currently on the market sell for around $30,000, higher than the
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price for comparable dedicated gasoline vehicles. Savings from reduced fuel costs will offset the higher
purchase prices over the lifetime of the vehicle, but consumers may not be willing or able to bear the
additional initial cost. While the upfront purchase costs are expected to come down as battery
technology improves and large scale production of batteries and EVs expands, EVs will continue in the
short term to cost more than similar gasoline fueled vehicles.
As more infrastructure to support eclectic vehicles comes online and battery range increase,
mainstream buyers of automobiles are starting to see the benefits of an electric vehicle. One factor in a
buyer’s decision to purchase an electric vehicle are the incentives available at the federal and state
levels. The current Federal tax credit for plug-in hybrid and electric cars benefit from a tax credit of
$2,500 to $7,500, depending on the size of the battery in the car. The incentive begins phasing out after
an automaker sells 200,000 vehicles that are eligible for the credit. Arizona does not have a direct tax
credit on electric vehicles, but does have a reduced license fee and a tax credit of up to $75 for a
resident who has an EV charging outlet installed in their home.
The Arizona VLT is included as part of the annual fee to register your vehicle. It is based on an assessed
value of 60% of the manufacturer’s base retail price reduced by 16.25% each year since the vehicle was
first registered. From there, the rate is calculated based on the assessed value; $2.80 per $100 of
assessed value for new vehicles and $2.69 per $100 for used vehicles. Alternative fuel vehicles are
assessed similarly although at 1% of the manufacturer’s base retail price with a $4.00 per $100 of
assessed value for the vehicle. The table below is a comparison of the payments that an equally priced
gasoline and electric vehicle would make into the VLT and estimated value to and EV owner of paying
less VLT.
VLT Paid by Gasoline and Electric Vehicles
$46,000 Gasoline
$46,000 Electric
Vehicle
Vehicle*
First Year
$773
$18
Second Year
$647
$16
Third Year
$542
$13
Total Over Vehicle’s
$4,423
$123
15 Year Life
*This was the average MSRP of all EVs sold in Arizona in 2013.
VLT Incentive Received
by EV Owner
$755
$631
$529
$4,300
Over the lifetime of the vehicle, the electric vehicle owner would receive approximately $4,300 worth of
reduced VLT fees.
While this is an important incentive for the state to offer, the same tax could be used much more
effectively as an upfront incentive rather than spread out over the life of a vehicle. Eleven states
(including Utah and Colorado) offer upfront incentives to electric vehicle purchasers. Because electric
vehicle owners will already be paying significantly less for fuel every year, the annual reduced license tax
is less effective as an incentive. Focusing the incentive on the time of purchase can help buyers to
overcome the price point barrier to EV adoption and further improve the alternative fuel vehicle market
in Arizona.
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A modified VLT would shift the lifetime amount of the tax incentive so the EV purchaser receives the
entire incentive at the time of purchase rather than being spread out over the 15 year lifetime of the
vehicle. Shifting the license tax to an upfront incentive would not require the state to expend additional
revenue for each vehicle; it will simply shift when the revenue is expended.
If the state were to modify the current VLT to a modest upfront incentive (instead of spread over the life
of the vehicle), this would save the state money over the life of the program. For example, under the
current license tax reduction, if 500 electric vehicles were purchased in 2014 with an average MSRP of
$46,000, the state would spend $2.15 million over the lifetime of the vehicles. If this was converted to
an upfront incentive of $2,500 utilizing the same valuation formula currently being used for alternative
fuel vehicles, the state would provide $1.25 million over the lifetime of the vehicles, saving $900,000
compared to the current program structure – reducing total state support by over 40%.
RECOMMENDATION
Shift the annual VLT reduction to a one-time upfront incentive, making the program more effective as a
rebate rather than a small annual tax credit. Offering a reasonable rebate of $2,500 for each EV
purchased would actually save Arizona money compared to the current incentive.
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