Tennessee electric vehicle drivers will soon face the highest taxes in nation

Tennessee drivers going electric will face new taxes starting next year.

On Thursday, the Tennessee General Assembly passed the Transportation Modernization Act, a $3.3 billion package from Gov. Bill Lee’s administration that creates new funding streams for road projects.

One funding source is electric vehicles.

The legislation raises registration fees for battery electric vehicles from $100 to $200 from 2024 to 2026 — and further increases the fees to $274 in 2026. In 2027, the fee can be raised or lowered by 3% per year. Drivers of conventional hybrids or plug-in hybrid electric vehicles will have a new $100 registration fee.

“At $274, it would be the most expensive in the country,” said Erin Hafkenschiel, director of the nonpartisan think tank ThinkTennessee.

Courtesy ThinkTennessee

Tennessee could soon have the highest tax on electric vehicles in the nation.

In the U.S., the average EV registration fee is $127, though not every state has this form of tax. And there are some states where EV drivers might face higher taxes under certain circumstances: Missouri factors in vehicle weight, Utah looks at miles traveled, and Virginia sets a fee based on a percentage of gasoline taxes, according to ThinkTennessee.

The higher EV fees are one of several revenue streams included in the Transportation Modernization Act. The measure also allows new “choice lanes,” a type of toll lane, and lets the state use public-private partnerships for their construction and operation.

The EV fees are not expected to generate significant revenue anytime soon, as electric vehicles currently account for about 0.4% of registered vehicles in the state. Tennessee had about 12,000 electric vehicles registered at the end of 2021, according to the U.S. Department of Energy.

Meanwhile, the Tennessee Department of Transportation says it lacks the funding needed to address congestion in the state. The agency spends about $1.2 billion on annual construction and maintenance, and inflation has been driving those costs higher.

The largest source of revenue for the department has been gasoline taxes. This funding source has been declining primarily because of more fuel-efficient gas-powered cars, according to ThinkTennessee, which estimates a small impact from increased EV adoption.

TDOT has forecast that gasoline taxes will remain static over the next decade, despite there being more cars on the road.

Tennessee ranked second-to-last among all U.S. states for owning an electric vehicle, according to an analysis by Bumper that considered financial incentives and existing EV infrastructure.

Simultaneously, Hafkenshiel pointed out, Tennessee has been becoming a major manufacturing hub for EVs.

“We’re about to have four of the biggest electric vehicle plants in the country, right here in Tennessee,” Hafkenshiel said. “It should be a priority of the state that Tennesseans have the opportunity to purchase and drive those cars.”