California Considers Reducing Sales Tax On Electric Cars

MAR 2 2015 BY MARK KANE 26

Nissan LEAF

Nissan LEAF

California has returned back to the idea of lowering sales tax on all-electric, plug-in hybrid, hydrogen fuel cell and compressed natural gas cars as another incentive to increase adoption of such vehicles.

As of today, sales tax stand at 7.5% and could be lowered to 3.06% (we don’t why they can’t go to 3.0%) from 2016 to 2020.

“The bill, sponsored by Assemblyman Phil Ting (D-San Francisco), would reduce the sales tax on new clean vehicles to 3.06%, down from the current 7.5%. The reduction would apply to electric cars, hydrogen fuel cell vehicles, plug-in hybrids and compressed natural gas vehicles.

Ting’s original bill stalled in 2013 primarily because of concerns over funding. But the legislator says the state’s improved financial health and Gov. Jerry Brown’s repeated calls for reductions in greenhouse gases and petroleum use have increased prospects for its passage.”

“The bill needs to clear several committees before heading to the Assembly floor for a vote later this year. The bill currently has no major opposition in the Assembly. The only hurdle will be the funding, Ting said.”

If the lower sales tax initiative passes, California would need to find a lot of money to support it and according to the source article, funding is the main hurdle.

With $4,500 off you don't need to rush to bank

With $4,500 off you don’t need to rush to bank

In 2014, plug-in electric car sales in California increased to about 60,000. At average transaction price of $34,725 per vehicle, that translates to a $92 million difference between 3.06% and 7.5% sales tax.

Sales are growing every year.  Lower sales tax will improve the growth even further, so for sure California will need over $100 million every year to offset incentives.

The most benefit will fall on the most expensive cars like the Tesla Model S – over $4,500 per every $100,000, while the Nissan LEAF will be cheaper by a third of this.

John O’Dell, a senior writer at also pointed this out:

“It’s still tending to reward people who probably are less in need of a reward. Poorer people aren’t going to be able to afford these cars unless they give them away.”

Anyways, GM and Nissan welcome the idea:

Shad Balch, a spokesman for General Motors said:

“We know that purchase incentives work. Anything that makes it easier for the customer to understand and is part of the deal in the showroom just adds to the benefit.”

Brian Brockman, a Nissan spokesman said:

“When incentives like this are available, it definitely increases consideration for electric vehicles like the LEAF.”


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26 Comments on "California Considers Reducing Sales Tax On Electric Cars"

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This makes me think: How smart would state governments be to invest in the charging infrastructure themselves? A way to both promote the sale/use of EVs and to make back some of the money they would otherwise be making on fuel sales tax. Put truly high-powered DC fast chargers every 75 miles or so on the highways.

An excellent idea… DC Quick Chargers at all state rest stops…. and solar overhangs to power them and cool the rest stops… saving the truckers from running ac so much while parked.

Consumption taxes are regressive.No news there.

Make up for it with gas guzzler taxes.

S-Class and Hellcat owners should be paying a lot more tax for those choices.

I don’t even know when the gas guzzler tax was last increased. Haven’t heard much about it for a while either probably because cars that were guzzlers 10 years ago now barely meet the minimum MPG requirement to not be classified a gas guzzler.

They should increase the MPG requirement to like 20MPG for cars.

I completely agree… raise it to 25MPG… that would raise some cash… and give poor folks a tax credit for it.

My guess would be that this only effects them to a limited degree. (1) Individual tax payer (and corporations) can write off either their state sales tax paid, or their state income tax paid off of their federal return, depending on which is greater. So in the case of the Tesla Model S, most purchasers, or leasing organizations would likely be able to write off the sales tax anyways. Lowering the sales tax for these vehicles might actually avoid this to some degree and could actually generate some additional revenue. On the flip side, for someone buying a leaf or other cheaper EV or plug in, this could provide an added incentive to purchase. This buyer is likely not going to be able to write off the sales tax compared to their state income tax. My guess would be they came to 3.06% because they determined this was the number that maximized revenue.

I doubt most individual Model S buyers can write off the sales tax. They are all in AMT (Alternative Minimum Tax) territory, and probably can’t even deduct their home’s property tax. Of course anything is possible if they consider their car purchase a “business expense”.

The 3.06% more likely comes from the fact that is the portion that is directed to local counties/municipalities and the balance that is being ‘waived’ is the portion that goes to the State general fund.

This actually does for itself as the avoided export of gasoline based $$$ (80% of every gas dollar spent in CA leaves CA) so the more EVs the more $$$ stays in CA.

That money, staying in CA, circulates and will create at least 3X in new activity which MORE than pays for the sales tax waiver.

Phil Ting is a money guy and former Assessor so het understands the sales tax flows.

Very nice. BUT why the heck is CNG supported? Terrible idea esp given the recent EPA and other science showing CNG is worse than gasoline for GHG.

City and County sales taxes are all above the 7.5% State Sales Tax mentioned in the story. There are two cities in CA that currently have a total sales tax rate of 10.00% – Pico Rivera and La Mirada, both in LA County. All of LA County has to pay 1.5% for a total of 9%, but those two cities add 1% additional for a total of 10.00%.

What the heck do they use that sales tax hike for? I’ve been to Pico Rivera and there is nothing special about that place! And yet at 8.5%, the bike/transit friendly city of San Francisco only has a 1% hike over the Statewide rate of 7.5%!

“rush to the bank”

I see what you did there.

It would be nice to see a time base component to this incentive. eg: greater incentive for owning an EV 2, or 3 years vs. a single year.

It would also be in California’s interest to also offer a sales tax reduction on ‘used’ EVs. Without similar incentives on used vehicles, California stands to loose these more economical entry vehicles to other states not offering incentives as buyers will opt to pick new.

This could mean the difference between California (not) reaching its 1 million ZEV goal for 2020.

PS: Another way to offer a similar value of incentive is to discount vehicle registration for ZEVs over first five years of ownership (new & used).

I think the fixed dollar amount rebates are a better idea than reducing or eliminating the sales tax – primarily because they make a bigger difference to buyers of more affordable cars like the Leaf than a Model S. Also, the money for rebates comes directly from air quality improvement funding, not from the State General Fund like a reduction in sales taxes would.

Do it.

Between solar PV and EVs, California can move heavily toward EVs and significantly reduce our oil dependence.

Peder and I are showing that it is pretty easy for California homeowners to drive on sunshine.

“It’s still tending to reward people who probably are less in need of a reward. Poorer people aren’t going to be able to afford these cars unless they give them away.”

If the law applies to used car sales as well, then it could benefit lower income people.

Lots of good ideas here. Here’s what I’d propose:

1. 100% sales tax reduction for plug-ins up to current rebate amount using the same rules to determine maximum rebate amount. Eliminate current rebate. Apply sales tax reduction to used vehicles, too.
2. Also reduce annual registration fees for plug-in vehicles by a flat fixed amount.
3. Use a gas guzzler tax to fund charging infrastructure.

So the tax on your $34,725 average car is $2778 at %8, which is about the same as the California rebate at $2500.

Why not just eliminate sales tax on these vehicles and also eliminate the rebate? No more forms, no waiting for the rebate, etc.

Or does that make too much sense?

I like the amount of the rebate tied to the battery size. Otherwise, why not make a $100,000 gasser, then put a small battery & plug it in it, and get away w/not having to pay sales tax.

Plus anytime a rebate is involved they are banking on a % not filling out the forms and not getting money back.

Well if it is proportional to the battery size then you give more to people buying a Model S than someone buying a Spark EV. Perhaps put a cap at 30KWH or something?

The sales tax reduction is for all “green” cars. The rebates vary depending on what type of “green” and how big the battery is.

The McChicken will now be $2.50 for the meal, to offset this the McDouble will be $6.99

Why do they need to “offset” a loss in revenue that is actually a reason for someone to purchase something??

I finally figured this one out. Its a SALES tax. As in leases need not apply. Its to try and plug the flood of used EVs on the market.

Do you really think the state doesn’t stick its hand out for taxes when you lease a car? Get real. It’s called “Use Tax” and the rate is the same as sales tax. You pay a portion of it on any cap reduction and a portion of your monthly payment is also use tax. The only difference is that you are paying tax in proportion to the amount that you are paying for the car. A lease is basically paying for the depreciation of the car during the period of the contract, so you only pay use tax on the portion that you’re using. If you buy out the lease at the end, then you’re finally paying sales tax on the remianing portion.

Mike is right. I leased my Leaf and I had to pay a tax on it that was exactly as he describes. The difference is that I gave the Leaf back to Nissan and did not buy out the car (and the sales tax remainder). Whomever ended up buying the used car would have paid for the remainder of the sales tax.

I can imagine some people of a certain political orientation going bonkers…

Lowering taxes, a good thing…
Picking winners and losers, a bad thing…