California Considering Tax for Drivers Based on Mileage Driven

California made headlines earlier this month with the announcement by Toyota that it would move its national headquarters from Torrance, California, to the city of Plano, Texas.  The move by Toyota has increased cries against the state’s anti-business practices, as it takes approximately 3,000 jobs and an estimated $475 million in annual property tax revenue from a state sorely in need of additional income.

The state is again in the news related to automobiles.  However, in this case, the headlines are not related to California’s unfriendly business policies that sent Toyota packing.  Rather, the news concerns state legislators who are considering a measure to tax drivers for every mile they drive.

Senate Bill 1077, proposed by Senator Mark DeSaulnier, a Democrat from the San Francisco suburb of Concord, calls for a tax of $0.05 per mile driven, although the final version of the proposal may have a different amount of tax.  The mileage tax would replace the state’s current sales tax of $0.529 per gallon of gasoline.

DeSaulnier has proposed the legislation because the state’s current highway fund does not have sufficient monies to pay for the upkeep of the state’s numerous roads and bridges.  Based on current funding provided by the sales tax on gasoline, officials have indicated the highway fund will run out of money during the summer of 2014.

“We’ve got to figure out how to pay for infrastructure,” noted Senator DeSaulnier.  “One philosophy is, if you use it, you should pay for it.”

Experts estimate the proposed tax would increase income by approximately $100 billion per year above that brought in by the current sales tax on gasoline.  The change is being driven by the state’s adoption of more fuel-efficient cars.  Although the state has advocated the use of high-mileage vehicles in large part to help protect the environment, those vehicles translate to the consumption of less gasoline by consumers.  The purchase of less gasoline translates to the payment of less sales tax on that gasoline to the states.

Whereas the sales tax on gasoline was originally aimed to tax people who drive more, fuel-efficient automobiles have reduced the effectiveness of that tax.  The proposed measure would again mean that the more miles someone drives, the more tax they will pay.

The mileage tax would go into effect in January 2016 for limited geographic areas as a form of pilot program.  If the program proves successful, the state could move to adopt the sales tax in other locations.  Other states in the west, including Washington and Oregon, are already piloting similar measures.

Drivers See Proposed Tax on Mileage as Unpopular Measure

Not unexpectedly, the proposed tax on mileage driven is not a popular one with motorists, who already see the sales tax on gasoline, the second highest in the United States, as enough money.  Those who have to drive as an integral part of their business, such as people who travel from site to site to perform landscaping work, have expressed concern they will no longer be able to afford to operate.

In general, others believe the proposed tax is a step akin to measures that have led to businesses such as Toyota leaving the state.  Drivers, when faced with the steep increase in tax on mileage, will simply decide to drive less or leave the state altogether.

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by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.