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Tax break for electric vehicles makes a comeback in Washington state

Tom Banse
NW News Network
Washington legislators revived a lapsed tax incentives for electric car purchases, effective August 1, 2019.

In their last minute dash to adjournment Sunday, Washington state legislators revived a lapsed sales tax break for buyers of electric cars. The resurrected incentive will be similar in value to a publicly-funded rebate for battery-powered cars that Oregon now offers.
A valuable tax break for buyers of fully-electric and plug-in hybrid cars in Washington expired last May.

State lawmakers voted to bring it back in modified formwith the goal of reducing greenhouse gas pollution from tailpipes. 

During floor debate, state Sen. Rebecca Saldaña (D-Seattle) said incentives are important to increase adoption of electric vehicles.

"We want to make sure this an opportunity available to everyone — from more modest income folks to folks that are doing very well for themselves," Saldaña said.

Paradoxically, data from the state Department of Licensing showed sales of electric vehicles accelerated after the previous tax break went away last year, primarily because of a surge in deliveries of the new Tesla Model 3. Still, battery-powered cars account for only a low single-digit percentage of new car registrations in the Pacific Northwest.

Legislators in Olympia who voted against the the revival of the sales tax break argued it was wasteful and questioned the purported benefits of electric cars for the changing climate.

"If we did a life cycle analysis of these electric vehicles, you would find they are not cost-effective at all," said state Sen. Jim Honeyford (R-Sunnyside). "They use a lot of energy producing the batteries, producing the materials. They just don't pencil out."

In the greater Seattle area, where the retail sales tax is high, the savings for buyers of a new, non-luxury electric car could total around $2,500 in avoided tax under the newly approved scheme.

That makes the incentive similar to Oregon's in value. Since last year, Oregon drivers who buy or lease a new, non-luxury electric car can apply for a state rebate worth up to $2,500.

The Washington sales tax break will be revived as of August 1, 2019. It was expanded from the previous version to also apply to sales of used electric cars. As before, electric vehicle leases also get a sales tax break. Hydrogen fuel cell electric vehicles could also qualify for the tax break, but no Pacific Northwest dealers currently stock or sell new hydrogen-powered cars.

To qualify for Washington's tax abatement, a new vehicle's sales price has to be less than $45,000 and a used electric passenger vehicle less than $30,000. These thresholds are meant to screen out buyers of high-end Teslas and BMWs. Oregon's rebate program operates with the same philosophy, but uses as its eligibility cutoff a base model MSRP of less than $50,000.

The Washington sales tax break is structured to ramp down and then phase out completely after six years.

For the first two years beginning this August, $25,000 of a new alternative fuel vehicle's price is sales tax free. The untaxed portion shrinks to $20,000 in 2021 and then down to $15,000 in 2023. For used EVs, $15,000 of the sales price is tax free throughout the period. 

The sales tax break is scheduled to expire on July 31, 2025.

The revived and modified sales tax break passed the Washington Legislature with bipartisan support, but with just hours to spare on the last day of the 2019 session. It passed in the state Senate 31-17. The final vote in the House of Representatives on Sunday was 91-7.

The state incentives in Oregon and Washington are in addition to a federal income tax credit worth up to $7,500 for buyers of certain models of new all-electric vehicles.

The sales tax break was paired with higher car tab fees for alternative fuel vehicles. Reasoning that electric and hybrid car drivers pay little or no gas tax to maintain public roads, the legislature increased a surcharge on the annual registration fees for electric vehicles by $75 dollars to a new rate of $225 per year. They also introduced a new $75 surcharge for hybrid electric vehicles, which previously were treated like regular cars.

Anti-tax activist Tim Eyman of Bellevue, Washington, told lawmakers and reporters last week that he aims to wipe out those car tab surcharges at the ballot box. Before these new fees were even drafted, Eyman directed a successful petition drive to qualify Initiative 976, which will appear on the statewide ballot this November. If approved by voters, it would cut all car tab taxes in the state to a flat $30 fee.

Now semi-retired, Tom Banse covered national news, business, science, public policy, Olympic sports and human interest stories from across the Northwest. He reported from well known and out–of–the–way places in the region where important, amusing, touching, or outrageous events unfolded. Tom's stories can be found online and were heard on-air during "Morning Edition" and "All Things Considered" on NPR stations in Washington, Oregon, and Idaho.