Vehicle-related Sources

A broad range of driver and vehicle-related taxes, fees, and charges are used at the state and local levels to generate dedicated transportation revenues. These include fees for issuing drivers' licenses and vehicle registrations, vehicle property taxes, various forms of vehicle- related sales taxes and imposts, and citation surcharges. The Commission determined through an initial assessment that two mechanisms simply would not make sense as federal revenue options, so they were not considered:

•  Vehicle Inspection and Traffic Citation Surcharges—State vehicle inspection requirements and traffic citation practices, as well as underlying laws and regulations, vary widely. This lack of state-to-state consistency would make it virtually impossible to attach a uniform national surcharge to these revenue mechanisms.

•  Vehicle Personal Property Taxes—A few states levy an annual property tax based on estimated vehicle values. Given the fact that most states do not levy this tax, the high degree of complexity associated with administering it at a national level, the unpopularity of large lump sum tax payments (as opposed to spreading taxes out over the year), and the potential for a federal tax to impinge on the revenue-raising ability of the few states that already use it as a source, there are too many barriers for this to be viable as a national surface transportation funding source.

Moreover, these mechanisms are flat taxes that do not vary by system use, thus they do not bear a direct relationship to use of the system or the generation of external costs.

The vehicle-related sources deemed worthy of further consideration, and evaluated in Exhibit 3-3, were vehicle registration fees, driver's license surcharges, and various vehicle-related sales taxes and fees. These mechanisms all incorporate some relationship to transportation but do not charge directly for system or individual facility use. 

Pros

•  Small federal fee (in comparison to existing state fees) could raise significant revenues

•  Fees could have strong sustainability if indexed or tied to vehicle value

•  Fees well-established as flexible, dedicated transportation funding source at the state level

•  Potential to piggyback fee implementation/compliance on state fee administration with little additional cost

•  Could charge (at least indirectly) for adverse impacts, such as carbon emissions, by increasing annual fee based on average vehicle fuel efficiency rating

Cons

•  Vehicle-related taxes (e.g., vehicle personal property taxes) are particularly unpopular

•  Vehicle fees and the level of associated revenues raised provide no incentive for users to use the transportation system more efficiently or for agencies to invest in the highest needs

•  For trucks, national registration fees potentially viewed as double taxation due to the existing HVUT mechanism

•  Potential for increased fees to create disincentives to register vehicles

•  A federal registration fee, if significant, could limit the capacity of state/local governments to raise their fees to fund transportation investments

Pros

•  Significant revenues produced from fairly small fee

•  Fees well-established as flexible, dedicated transportation funding source at state level

•  Potential to piggyback fee implementation/compliance on state fee administration with little additional cost

Cons

•  Likely to have strong public and political opposition

•  Implementation potentially challenging, given variations in state licensing practices

•  Federal fee could limit capacity of state/local governments to raise their fees to pay for transportation investments

•  Weak relationship between fees and efficient system use/investment

•  Potential to create disincentives to obtain a license

•  Poor social equity

Pros

•  Modest tax rate, with a small annualized cost to consumers, could raise significant revenues

•  Tax rates could vary to encourage/discourage purchase of different types of vehicles

•  Strong sustainability, since tax revenues likely to grow in line with gross domestic product (GDP)

•  For most purchases, buyers could likely incorporate one-time cost of the tax into vehicle financing and amortize repayment of the tax over multiple years

•  Justifiable as a flexible, dedicated source of funding for surface transportation

Cons

•  Very limited relationship between vehicle sales taxes and system use/facility in- vestment

•  Political willingness to impose a tax that would increase automobile prices likely to be low, at least until the U.S. auto industry recovers

•  Sales taxes typically viewed as revenue mechanisms for state/local governments; potential for this tax to significantly impinge on capacity of those governments to raise their taxes

•  Creates new administrative and compliance issues

Pros

•  Reasonably small percentage tax could raise significant revenues

•  Strong sustainability, since tax revenues would likely grow in line with GDP

•  Justifiable as a flexible, dedicated source of funding for surface transportation

Cons

•  Significant administrative and compliance issues: in several areas definition of auto-related goods and services subject to interpretation, which creates opportunity for evasion; maintaining and enforcing these definitions likely to be arduous; in addition, unable to piggyback tax on existing administration mechanisms in states that do not impose sales taxes

•  Social equity issues

•  Little relationship between vehicle sales taxes and actual system use/facility investment

•  Limited public acceptance and political viability

•  Sale taxes typically viewed as revenue mechanisms for state/local governments rather than the federal government

•  Potential to create disincentives to repairs and thus undesirable safety/environ- mental effects

Pros

•  Potential to raise a modest level of revenue without significantly increasing the cost of tires

Strong sustainability, since tax revenues would likely grow in line with GDP

•  Justifiable as a flexible, dedicated source of funding for surface transportation that would not be overly burdensome to implement and administer

•  Moderately strong relationship between tax user benefit/impact

Cons

•  While a reasonable relationship between tire sales taxes and overall system use exists, there is no relationship between taxes paid and decisions about travel time or facility type, nor is there an opportunity to influence the efficiency of facility in- vestment decisions with tax

•  Potential undesired impact on safety by discouraging timely replacement of worn tires

The principal logic for a federal tax on bicycle tires, as opposed to a state tax, is the same as that for a federal truck tire tax. Consumers can easily go to another state (either physically or through mail-order) to purchase tires if the after-tax price is too high in one state. In fact, many bicycles and bicycle tires are purchased online and thus are not easily taxed on a state-by-state basis.

Assuming a federal bicycle tax excludes the sale of tires for children's bicycles, a $5 per tire tax could raise approximately $75 million per year and, if provided to states with the requirements that states match the funds dollar for dollar, could support a $150 million per year program to maintain and expand bicycle paths across the nation.

Pros

•  Strong sustainability, since tax revenues would likely grow as bicycle use expands

•  Justifiable as a dedicated source of funding for bike and pedestrian improvements

•  Federal tax is an appropriate method to capture and allocate revenues when a large percentage of goods are purchased out of state through online and mail order purchases

•  Although collection mechanism would need to be created, tax would be fairly in- expensive to administer and collection would be fairly straightforward to administer and enforce

•  Moderately strong relationship between tax user benefit/impact

Cons

•  Would not raise a large amount of revenue, even in the context of current federal bike and pedestrian path spending levels

•  May not enjoy strong public or political support

•  Limited flexibility on use of funds

•  Could lack geographic equity if spending is concentrated (i.e., in urban areas)