As the demand for alternative fuels like electricity for EV charging stations rises, states are evolving their tax policies, presenting auto dealerships with new challenges in tax compliance and financial planning.
Historically, a number of states have deemed the sale of electricity as subject to state and local sales tax, while subjecting purchases of gasoline and other traditional fuels that power on-road vehicles to separate fuel taxes. As alternative fuels such as clean natural gas (“CNG”) and liquified natural gas (“LNG”) – which have not traditionally been subject to sales tax – have grown in demand, states have expanded taxes to those fuels to reduce any potential revenue loss resulting from the move away from traditional fuel sources.
Against that backdrop, states are adjusting their tax regimes to address electricity dispensed through electric vehicle (“EV”) charging stations. The response has been a mixture of subjecting the electricity to sales tax versus defining the usage under alternative fuels tax rules.
Example State EV Taxing Regimes
Of the states that have defined electricity from an EV charging station as an alternative fuel, Iowa, Kentucky, Oklahoma and Pennsylvania have also implemented rules that hold the operator of the EV charging station as the responsible party to remit the tax. Some states, such as Pennsylvania, have taken the additional step of requiring the tax to be remitted even if the operator of the charging station does not charge for the electricity. These regulations may further require the operator to register under the alternative fuels tax rules and create an additional tax filing in that jurisdiction.
Some states that apply existing sales tax rates to the electricity from EV charging station, such as Arkansas and Indiana, will treat the operator of the EV charging station as selling electricity to the person charging the EV. As such, the operator will have to calculate the tax on the electricity dispensed through the charging station and remit the tax to the taxing jurisdiction.
Implications
Taxes on electricity distributed from EV charging stations potentially create a new tax burden on auto dealerships, including the potential to be subject to taxes not traditionally applicable, such as state fuel taxes. Because states vary in their approach to taxing electricity distributed from EV charging stations, auto dealerships are further challenged with the task of determining how to comply with taxes across multiple jurisdictions. Additionally, to the extent a tax is required, auto dealerships must determine if and how the tax will be charged to customers using the EV charging stations.
Further, auto dealerships must take special precautions to understand who is responsible for remitting the sales or fuels excise taxes, especially in states where the operator of the EV charging station collects the tax. While some states require the operator to remit the tax as the facilitator of the transaction, other states allow the auto dealership to remit the tax. In the latter circumstance, auto dealers must be careful to coordinate with the operator regarding how the taxes will be remitted.
Finally, if the electricity distributed from the EV charging station is subject to tax, the initial purchase of electricity from the provider may be exempt from tax pursuant to a resale exemption. If this is the case, auto dealers face the difficult task of establishing the percentage of electricity that is exempt from their overall electric utility purchases.
The Schneider Downs State and Local Tax Group can assist car dealership clients in navigating the requirements in each state.
About Schneider Downs Automotive Industry Group
The Schneider Downs Automotive industry group serves dealers of all sizes, from single-point locations to mega-dealerships. Our members cross departments and meet regularly to ensure efficiency in the services provided to our clients and discuss issues, regulations and trends affecting the automotive industry.
To learn more, visit our Automotive Industry Group page.
