Expiring Tax Break Jolts Electric Car Sales

Jun 23, 2015

Sales of expensive electric cars are getting a jolt from the impending expiration of a sales tax incentive in Washington state. It goes away June 30.

The Tesla Model S is a sleek, fully electric luxury sedan that turns heads. The price tag can make hearts skip too. Some versions cost $100,000. Telsa Motors has three showrooms in the Northwest.

Lance Merkin is the manager at in the Westlake Telsa store in Seattle. He’s been unusually busy lately.

“Imagine your own personal workload doubling,” Merkin said. “That’s what has happened.”

‘A great motivating factor’

Merkin said for the past two months he's been telling anyone on the fence that a valuable tax break is likely to go away at the end of June. Tesla also emailed notices to its customer database.

"A lot of fence sitters, it has brought them down to act sooner rather than later,” Merkin explained. “So it has definitely been a great motivating factor. It is almost a doubling of our orders because of that in Washington state."

How much of a difference does the tax incentive make for a Tesla buyer?

"For easy math, at 10 percent of a (big) ticket item like an upscale luxury sedan, that could be a $9,000 to 10,000 savings to consider,” Merkin said.

All-electric cars have been exempt from sales tax in Washington since 2009. The sales tax reaches 9.5 percent in Seattle’s King County.

Electric car enthusiasts, major automakers and Washington's governor have urged state lawmakers to extend the tax break for another four to six years.

Merkin is resigned to it going away, but said he'll miss the incentive.

"We have loyal folks. We have a lot of folks that still want to go electric,” he said. “So it will be a small hindrance, but overall we'll still continue forward doing what we do. But will we miss it? Absolutely."

The other top-selling all-electric model is the Nissan Leaf. A manager at Bellevue Nissan said the vast majority of Leafs are leased rather than purchased outright. In that case, the sales tax break is not as valuable. The Nissan dealership reported no significant sales bump from buyers trying to beat the buzzer.

Bigger budget issues

In the Washington Legislature, some lawmakers are trying for a last-minute save. Democratic Senator Mark Mullet said the electric car tax break has taken a back seat to bigger budget issues, but he for one is optimistic it might be squeezed in at the end.

"The places that have the incentives are the places that are selling a lot of electric cars,” Mullet said. “So if you let it lapse now, it's going to be a huge mistake and you will definitely see backward progress on electric car sales in the state of Washington, which makes no sense."

The conservative-leaning Washington Policy Center made the case for letting the tax break lapse. "State data show these breaks go primarily to the wealthy who would have purchased these vehicles anyway," WPC environmental director Todd Myers wrote in an email earlier this year. "As a result, the policy does little to incentivize purchase of EVs and yields almost no additional environmental benefit."

Extending the sales tax break would cost the state treasury between $5 million to $6 million per year according to an estimate by the Washington Department of Revenue.

Myers wrote Thursday that his guess for why the tax incentive is dying is that the money is needed to patch up the state budget.

If the electric car incentive wins an extension in Washington state, two of its leading backers say the tax break will assuredly be capped to avoid the appearance of subsidizing luxury buyers. A state Senate bill limited the tax break to the first $40,000 of any sale while the state House proposed to exclude any battery-powered vehicle costing more than $35,000 from eligibility for the tax exemption.

Different states, different directions

Meanwhile in Oregon, advocates of pollution-free driving proposed a different state subsidy for plug-in car buyers. But it is languishing in the state legislature.

Oregon doesn't charge sales tax, so electric car advocates and sympathetic lawmakers there introduced legislation to offer a $3,000 rebate on battery-powered and hydrogen-fueled cars. The measure received a favorable hearing in Salem in early April, but has since stalled out in the state House Revenue committee.

Jeff Allen, the executive director of the nonprofit Drive Oregon, is a rebate advocate, but said it's now an uphill battle.

"The challenge has been finding the funding to pay for it and to pay for creating a new incentive program in a real tough budget climate," he said. “As usual there is a whole host of demands on the budget."

Allen said different states have gone different directions this year. Georgia, Texas and Illinois are ending rebates or tax credits for green cars. Meanwhile, Connecticut, Massachusetts and Tennessee are starting or expanding incentive programs.

The Georgia Legislature recently axed that state's $5,000 income tax credit for EV buyers and added a $200 registration fee for battery-electric cars. The generous state tax credit had lifted Georgia into the top ranks of EV adopters per capita.

Earlier this year, Illinois suspended its $4,000 clean-car rebate program to help close a state budget deficit. In Texas, a plug-in vehicle rebate program seeded with a one-time infusion of money is set to expire next month after running for slightly longer than a year. It offered $2,500 rebates for most plug-in and fully-electric models, but excluded the Tesla Model S.

Merkin noted a federal income tax credit of $7,500 for purchasers of battery-powered cars is in no danger of going away.