May 23, 2016

Changes in eligibility for plug-in vehicles in Washington

Last month, Governor Inslee signed the second engrossed substitute house bill 2778 which suggests modifications to the retail sales and use tax exemption criteria for certain clean alternative fuel vehicles. Based on previous version of the bill, only alternative fuel vehicles with MSRP no more than $35,000 were eligible to use tax exemption. For example, if their MSRP was $36,000, they could not use this tax exemption.  From July 1^st, 2016 the tax exemption would be applicable to up to $32,000 of a vehicle’s selling price for vehicles with a manufacturer’s suggested retail price (MSRP) of up to $42,500. The new modification results in expanding the variety of vehicles that can enjoy the tax exemption, while slightly reducing the benefit available for some vehicles. For example, newly unveiled Tesla Model 3 with an expected price of $35,000, Chevrolet Bolt with MSRP of $37,500, and several other vehicles. With the new vehicle even if the car price is $33,000 it can use the tax exemption for $32,000 portion of its price.

The following diagrams illustrate the most popular electric vehicles (both battery electric and plug-in hybrid electric vehicles) in state of Washington.

Based on the pricing of these popular electric vehicles, we cannot expect the modifications in the tax exemption cause huge changes EV sales, since few EVs were excluded by the previous criteria but included under the new criteria. (This means vehicles with MSRP between $35,000 to $42,500.) As can be seen in the following table, only the Ford Fusion Energi and the Mercedes-Benz B-class electric fall into this range. However, the policy change may help some new EVs which are not yet in the market such as the Tesla Model 3, Chevrolet Bolt, and the new generation of pervious EVs such as Nissan Leaf.

Let’s consider Tesla Model 3. The wave of interest around the unveiling new Tesla was impressive and took over electric vehicle world. One of the reasons for such widely welcomed was the affordable price of Model 3. Now in Washington State because of the new modification of the bill, buyers can expect tax savings between $2,600 to $3,100 (“the total sales and use tax falls between 7.9% and 9.8%, state sales tax is 6.5%, use tax to finance transportation improvements is 0.3%, and local tax rates vary”). Based on the popularity of the Tesla Model S in Washington State (as the second most popular plug-in vehicle, despite its high price), the Model 3 appears poised to sell well in Washington State