Tennessee Prepares for Electric Vehicles

On Monday, February 7, the House Appropriations Subcommittee met to hear from several state departments about electric vehicles (EVs) in Tennessee and trends in tax revenue. The Tennessee Department of Environment & Conservation (TDEC) first described how Tennessee has been assessing statewide adoption of EVs and the ensuing need for EV charging infrastructure. One infrastructure project TDEC is working on is developing the Fast Charge TN Network, which is an effort to establish 50 new charging stations along highway corridors, so that there will be charging locations at minimum every 50 miles along interstates. TDEC has also partnered with Rivian, an electric vehicle company, to establish charging stations at all 56 Tennessee state parks. 

In the second presentation, Commissioner of Revenue David Gerregano informed legislators about the trends in vehicle registrations. While typical gas-fueled vehicles are assigned a $26.50 registration fee, EVs have an additional $100 cost established in the 2017 IMPROVE Act, for a total registration fee of $126.50 per electric vehicle (hybrid vehicles are not required to pay the extra $100 fee, though legislators may revisit the idea of adding an extra fee for hybrid registration as well). Since FY2019, EV registration fee revenue has doubled, totaling almost $900,000 in FY2021. 

This parallels the number of EV registrations in Tennessee: in FY20, the state registered 6,400 electric vehicles, and by the end of 2021, 12,000 EVs were registered. While EVs are less than 1% of vehicles registered across the state, it is predicted that demand for electric vehicles will continue to grow, with a projected 200,000 EVs registered in Tennessee by 2030.

Fuel tax revenues are also an important part of the conversation on electric vehicles. As of July 1, 2019, the gasoline tax in Tennessee is $0.26, and the diesel tax is $0.27. According to Gerregano, each type of tax revenue is split into four funds. Of the gasoline tax, 60.5% goes to the Highway Fund, 25.4% to counties, 12.7% to cities, and 1.4% to the General Fund. The diesel tax has a slightly different distribution: 73.1% to the Highway Fund, 17.4% to counties, 8.7% to cities, and 0.8% to the General Fund. Also, it is important to note that the $100 EV registration fees are allocated completely to the Highway Fund. 

When looking at fuel tax collections over the last several years, gasoline tax collections in FY20 fell by 1% from the previous year, which Gerregano attributed to decreased car travel during the COVID-19 pandemic. Motor fuel (diesel) tax collections had a period of strong growth in the late 2010s, but this has leveled off between FY19 and FY21 as the IMPROVE Act has gone fully into effect.

One significant topic brought up by Rep. Jason Zachary of Knoxville is how to collect revenue from out-of-state EV drivers. Currently, when tourists drive in and through the state, Tennessee gathers revenue from fuel taxes, which helps with road maintenance. With alternatively fueled vehicles becoming more common, the state may want to establish fees for using a Tennessee charging station, et cetera. Commissioner Gerregano suggested that the Department of Revenue may study alternative ways to gather income as EVs become more widespread.

The final presentation to the committee was from the Department of Transportation. Interim Commissioner Joe Galbato elaborated on registration and revenue options. Because Tennessee is still at the beginning of the uptake of electric vehicles, the state doesn’t expect to feel much financial impact until 2025 or 2026. That being said, states across the nation are considering options for incorporating revenue from EVs into state funding. 

One of TDOT’s focuses is to make sure that EV infrastructure investments are eligible for available federal funding, specifically through developing alternative fuel corridors. While electric vehicles are one type of alternative fuel vehicle, Tennessee is also considering other fuel options such as compressed natural gas, propane, liquefied natural gas, and hydrogen. The 2021 federal infrastructure bill provides $88 million to Tennessee for EV charging, and additional funding for some of the other fuel types. 

Rep. Johnny Garrett of Goodlettsville asked how TDOT anticipated that inflation would affect the completion of infrastructure projects from the IMPROVE Act. With over 900 projects on the horizon, and with inflation continuing to increase, some of these projects may take 5-10 years longer than expected because of rising costs. That being said, federal funding from the federal infrastructure bill does relieve some of the financial burden.