Time for States to Put the Pedal to the Metal on Self-Driving Car Taxes

It’s not a question of “if” states will pass a self-driving car – or autonomous vehicle (AV) – tax; it’s a question of when.  The majority of states have laws on their books about the operation of self-driving vehicles.  But very few have addressed any of the related tax concerns.  That’s likely about to change.

What is Considered a Self-Driving Car?

There are 5 different automation ratings for self-driving cars.  The higher the rating, the more automated the vehicle is.  The levels are:

  • Level 1 – Driver Assistance: the driver performs all duties, except the vehicle helps steer or speed up/down;
  • Level 2 – Partial Automation: the vehicle helps with one or more systems, and the driver does the rest;
  • Level 3 – Conditional Automation: the vehicle does everything, but the driver helps when necessary;
  • Level 4 – High Automation: the vehicle does everything, but not in all conditions; and
  • Level 5 – Full Automation: the vehicle does everything in all conditions.

Right now there are no fully automated (Level 5) vehicles legally driving on the American roads.  But, there are some partially automated (Level 2) vehicles already on the roads. 

What’s the ETA on Self-Driving Cars?

The technology for self-driving vehicles has been accelerating at a very rapid rate.  Just last month Elon Musk stated that Teslas will be fully autonomous next year.  Granted, Musk has made this claim before and not delivered.  But, most other car makers have given estimates that are not far behind.  The majority of car makers are expecting to have self-driving cars on the roads between 2021 and 2025.  The expectation is that most of these will be high automation (Level 4) vehicles.

Slow Down:  Why Do We Need Self Driving Taxes?

The emergence of self-driving cars is a national concern, but will likely affect cities particularly hard.  Many cities are dependent on revenue brought in by cars.  Their budgets rely on money generated by:

  • gas and fuel taxes;
  • parking and traffic tickets;
  • parking revenue; and
  • license and registration fees.

Next Gas Station:  612 Miles Ahead

Automakers are not only focusing on self-driving technology.  They are also focusing on efficiency.  As autonomous cars become more efficient, they will be less dependent on gas.  Most self-driving cars are expected to use electric drivetrains.  So, the local, state and federal gas tax revenue will soon dry up.

Downshifting on Tickets and Parking

Self-driving cars will not get traffic tickets.  They will not get parking tickets, either.  They won’t make the mistakes that human make.

A real concern is that they won’t park in cities at all.

The artificial intelligence controlling the self-driving vehicle will do whatever is most cost-efficient.  And that will lead to a lot of empty parking garages.

No More Bad Drivers’ License Photos?

Licensing fees will likely become another area of declining revenue.  If a self-driving car doesn’t have a gas pedal or a steering wheel, does the person inside even need a license?  Would a child as a sole passenger need a license?  Or a blind person?

So many questions that still need answering.  It’s clear that licensing revenue appears to be at serious risk.

Self-driving cars will still use the roads.  But much of the tax money currently generated to maintain those roads will go up in smoke.  As self-driving cars begin to fill our streets, they will create huge potholes in city budgets.

Green Lighting Taxes on Self-Driving Cars

Before states can even begin to tackle how to tax self-driving cars, they need to address self-driving laws in general.  Many states do not yet have any laws at all on autonomous vehicles passed yet. States need to pass laws, including:

  • safety standards;
  • licensing requirements;
  • registration requirements;
  • insurance requirements;
  • liability requirements; and
  • definitions.

Passing tax laws without having the groundwork for self-driving vehicles in place could create a lot of difficulties.

Caution:  Pass With Care

Everybody does not agree on the best way to tax self-driving vehicles.  If different states apply different laws, road tripping could soon become a nightmare.

Are Net Rider Fares the Most Fair?

In September 2018, California passed a law allowing San Francisco to impose a tax on rides from automated vehicles.  The automated vehicle tax would apply to rides originating in San Francisco at a maximum rate:

  • of 1.5% of the net rider fare when a passenger shares a ride; and
  • 3.25% when a passenger does not share a ride.

This tax would apply to rides as a service, not all self-driving vehicles.  San Francisco voters would have to approve this law in November 2019 before it could go into effect.

The Mileage Tax Gets Some Traction

Other states have looked at imposing a tax on autonomous vehicles based on their mileage.  This type of tax is referred to as a vehicle miles traveled (VMT) tax.  Bills have been introduced with taxes ranging from 1 cent per mile to 2.5 cents per mile.

But there are road blocks.  Critics of the VMT approach fear that the autonomous vehicles would not pay for parking as a cost-saving measure.  Instead, they would drive around and intentionally create traffic jams to limit their mileage when not in use.

Parking charges would cost more than the cost of just circling around the block endlessly for hours.  And, if a mileage tax is enacted, staying on the roads, but traveling less miles would make the most economic sense for the autonomous car.  The roads could become congested with empty cars trying to avoid parking costs and mileage taxes.

One of the most common arguments against the VMT tax are privacy concerns.  Critics are worried that it would allow the government to track the movement of drivers.

Others think the VMT is a good starting point.  The Eno Center for Transportation supports a national VMT tax as a baseline.  They would like to see it with additional charges based upon the type of vehicle, number of passengers, and other factors.

Buckle Up for the Future

The economic consequences of self-driving vehicles are still hypothetical.  No one quite knows how they will really be used.  Will they mainly be used as a transportation service?  Or, will people still buy and own their own cars?  Will the decrease in needed traffic enforcement balance out with road maintenance needs of ruts being fixed because the AI cars all travel the exact same path in the road?  There are numerous questions to consider.

Not knowing how much tax money will be lost or how many expenses will go away or what new expense will pop up creates a difficult budgeting problem.  However, the one thing most people agree on is that self-driving car tax laws need to be considered now.

Noelle Erber

Login to read more on CCHAnswerConnect.

Not a subscriber? Sign up for a free trial or contact us for a representative.

AUTHOR

CCHTaxGroup

All stories by: CCHTaxGroup