Implementation of Iowa's electric fuel tax is here. This article explains what EV charge station owners need to know, and why the tax is poor policy and should be changed.
Heads up electric vehicle (EV) charge station owners: All non-residential EV charging that happens in the state of Iowa will be subject to a new 2.6 cents per kilowatt/hour fuel excise tax beginning July 1.
The tax applies whether a station currently charges for electric fuel or gives it away, and whether a station is for exclusive owner use or is available to the public. It applies at every charge station except those located “at residences,” as the Iowa Department of Revenue states on its guidance page:
In 2019, the Iowa legislature enacted House File 767 to create a new excise tax on sales of “electric fuel,” or electricity dispensed into an electric vehicle (EV) for purposes of propelling the EV. This new tax takes effect July 1, 2023. Beginning July 1, owners of EV charging stations will be responsible for reporting and paying to the Iowa Department of Revenue two and six-tenths cents for each kilowatt hour ($0.026 per kWh) of electric fuel dispensed into an EV battery or energy storage device. This does not apply to electric fuel dispensed at residences.
The well-intentioned purpose of the tax, of course, is to ensure electric vehicle drivers pay their share into Iowa’s Road Use Tax Fund (RUTF). The RUTF is the primary source of funding for roads and bridges at the state and local level, and is funded largely by the gas tax, which EVs do not pay.
In practice, HF 767 was and is poor policy, as we explained in our Triple Tax article in 2019, and we can do better. We’ll return to this fuel tax policy discussion, but first, the nitty gritty of what the new tax means for charge station owners.
Charging “At Residence” Is Exempt
The Department’s guidance page, and the administrative rules, make it clear that EV charging at places of residence is exempt from the tax, and provide examples.
According to the rules, ““residence” includes apartment buildings or other multi-residential facilities and houses regardless of whether the owner lives in the house. “Residence” does not include hotels, including extended-stay hotels, motels, or other facilities rented to transient guests.”
This means EV owners charging their vehicles where they live – whether they rent or own their homes – are not subject to the tax. It also means that the owner of those charge stations – whether a homeowner or a landlord or third party – is not required to obtain a license and remit the tax.
It is important to note that the residential exemption applies to charging happening at a place of residence, and not exclusively to charging for residential use. According to an example provided by the Department, if a person operates a business from a residence, and the business includes use of an electric vehicle, that vehicle can be charged at the place of residence and the person does not need to obtain a license or remit the tax.
The rules also state that “A person that only sells or dispenses electric fuel for which an exemption or refund may be claimed is not required to obtain a license to dispense such fuel.” The only example given of this exemption is a charge station owned by a municipal electric utility that is used exclusively for charging vehicles owned by the utility or municipality.
Meter and Document NOW, Register and Pay Later
Other than charging located “at residences,” the tax goes into effect for all electric fuel dispensed beginning July 1, so charge station owners need to be sure they’re metering and document the quantity of fuel dispensed from that point forward. This may require new metering or documentation procedures, especially in circumstances where fuel is currently provided at no cost.
The Department of Revenue has created separate licenses for two groups of charge station owners: electric fuel users, and electric fuel dealers.
The electric fuel user license is for the owner of a charge station used only to fuel electric vehicles owned and controlled by the station owner, such as fleets. The electric fuel dealer license is required for station owners providing fuel to others. A station owner supplying fuel to both owned vehicles and to others must obtain both licenses. Station owners are required to obtain licenses and remit tax, not station “hosts” (if they don’t own the station).
Station owners required to obtain a license must do so electronically, as described on the Department’s guidance page. Licensees will need to pay the tax every six months, with the first return (covering July 1 to December 31) due January 31, 2024. The payment will be based on total kilowatt-hours dispensed during the 6-month time period.
So while there is plenty of time for station owners to obtain the required licenses, station owners must ensure adequate measurement and documentation of electric fuel dispensed beginning July 1. The rules state that license holders may rely on electric meters or station software to track kilowatt-hours dispensed, or may contact the department for approval of alternate methods.
The Iowa Department of Agriculture and Land Stewardship is responsible for testing and verification of charge station measurement at least once every two years.
Poor EV Policy, Better EV Policy
We mentioned earlier that HF 767 (including this electric fuel excise tax) is poor policy. Here’s why:
First, it’s highly discriminatory. This is because while Iowa home owners are likely able to avoid the tax by charging their EV at their residence, many Iowa renters do not have that ability, and may not for quite some time. Studies show that when given the opportunity, most EV drivers will obtain 70-80% of their fuel needs from home charging.
The electric fuel cost inequity is actually a severe case of adding tax insult to existing injury. This is because renters without the ability to charge an EV at their residence will need to purchase charging at a public charge station, at significantly higher cost even before the tax is added. Most Iowans pay 10-18 cents per kilowatt-hour for their residential electricity, while public charging stations generally charge 25-50 cents per kilowatt-hour.
According to the National Low-Income Housing Coalition, roughly 28% of Iowa households are renters, and the median income of these households is less than half the statewide median household income. And so we have yet another case of structural inequity and policy discrimination. Lower income Iowans of all racial and ethnic groups are not only subject to a tax that wealthier Iowans will rarely pay, but in the end will often be paying double for vehicle fuel, all things considered.
Besides the discriminatory aspects of the electric fuel excise tax, it is simply an ineffective and inefficient policy tool. If the goal is to fairly fund the road use tax fund, a tax that does not apply to 80% of the fueling needs of a majority of Iowa EV drivers (those charging/fueling at home) is hardly effective.
In an apparent attempt to address this problem, HF 767 also added an extra $130/year registration fee to electric vehicles. This is an extremely blunt instrument, however, with no relation to actual miles driven.
In practice, the combination of the fuel tax and the registration tax means most EV owners (including home renters) will actually be paying much more than their fair share into the road use tax fund relative to non-EV drivers, while a small portion of EV owners (including some home owners with larger vehicles and/or higher mileage) may pay a bit less than their fair share.
There are better policy tools to meet the objective of having EV drivers pay their fair share of road use funds.
According to the Department of Energy’s Alternative Fuels Data Center, Iowa appears to be one of just four states in the nation that have implemented BOTH an electric vehicle specific registration fee, AND an electric fuel tax. Many states have an additional registration fee, very few have established an electric fuel tax, and a few are piloting something called a “road use charge”.
A road use charge (RUC) is an attempt – as the Minnesota Department of Transportation states – “to charge vehicles appropriately and proportionately for use of the roads.” It is generally an assessment based on actual vehicle miles driven, combined with certain vehicle characteristics.
Minnesota is just one of many states researching, building, and piloting road use charge programs. The National Conference of State Legislatures (NCSL) has held a national summit on road use charges in 2022, and has developed a state road use charge toolkit to track developments and share policy innovation.
Iowa policymakers would do well to consider joining the broad network of states actively pursuing road use charge policy options. They will likely prove to be more effective, efficient, and fair than the current combination of registration fees and electric fuel taxation, for funding the road use tax fund.
Posted: June 23, 2023
