Texas Imposes New Tax on Electric Vehicles

Texans who own or buy electric vehicles will see their registration costs jump. Here's what you need to know.

Welcome to Texas sign for electric vehicle tax
(Image credit: Allard Schager/Getty Images)

Purchasing an electric vehicle can result in a potential money-saving federal EV tax credit, but as of September 1, Texas residents have to pay more to own an electric vehicle in the state. Under a new EV law signed by Gov. Greg Abbott, Texans who own or purchase electric vehicles will pay up to $400 to register their “clean vehicles” and $200 every time they renew their registrations. The measure is expected to generate about $38 million in new revenue.

Proponents of the Texas electric vehicle tax say that it will ensure Texans contribute to highway expenses, which the state pays for using state gas tax revenue. (There are reportedly about 200,000 electric vehicles in the state.)

“With the growing use of EVs, the revenue from the fuel tax is decreasing, which diminishes our ability to fund road improvements for all drivers," said Texas Sen. Robert Nichols (District 3), who sponsored the bill.

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However, some policymakers and organizations say the increased Texas EV registration fee will punish EV owners and not effectively address the state’s problems with road funding. For example, Consumer Reports has described the measure as a “punitive tax on people who choose to go electric.”

The new law excludes motorcycles, mopeds, and autocycles. But Texans who purchase or own EVs, now have to pay the new fee on top of any other required vehicle fees.

Texas electric vehicle fee: Higher than gas-powered vehicles?

The new registration fee raises questions about whether Texans will pay more for having an EV than they would if they owned a gas-powered vehicle. The electric vehicle fee will allow the Texas Highway Department to receive more funding. Still, since current vehicle registration fees in Texas are around $50, the electric vehicle fee ends up being a nearly $350 one-time increase for new EV drivers and an almost $150 increase for renewal each year.

In a January 2023 report, the Texas Comptroller estimated that over $2.8 billion of the funding for the Texas Highway Department would come from motor fuel taxes in 2024. Less than $1.7 billion of that would come from vehicle registration fees. As more Texas residents opt for electric vehicles, gas tax revenue is expected to decline. 

  • According to the Texas Department of Transportation, $0.15 of the state’s $0.20 gas tax goes to fund highway expenses.
  • The remaining $0.05 is allocated to public schools. 
  • Data show that the average Texas driver pays approximately $9.52 in gas taxes each month, which results in $114.24 every year.

What does this mean? This means that electric vehicle owners in Texas will likely pay more taxes under the new law than if they drove a gas-powered vehicle. 

Other states with electric vehicle fees 

If you're wondering, Texas isn’t the only state to increase registration fees for electric vehicles. According to the National Conference of State Legislatures, at least 32 other states require special registration for electric vehicles, and at least 19 states impose a fee for plug-in hybrid vehicles. 

Those fees currently range from as little as $50 to as much as $225. California, Indiana, Mississippi, Utah, and Michigan have legislation in place that will increase electric vehicle fees over time and with adjustments based on inflation or on the consumer price index (CPI).

Much of the revenue from electric vehicle fees typically goes toward funding the state’s highway initiatives. However, some states, such as Colorado and Alabama are reportedly allocating part of their new EV fees for electric vehicle charging stations and infrastructure, which will be crucial as more people purchase electric vehicles.  

Does texas have a tax credit for electric vehicles?

Texas previously offered a tax credit of up to $2,500 for electric vehicles. However, the credit ran through early January of this year. But on the federal side, for taxpayers who meet income limits, there’s a federal EV tax credit of up to $7,500 on eligible new clean vehicles, and the federal tax credit for electric vehicle chargers that had expired in 2021 is back. 

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Katelyn Washington
Tax Writer

Katelyn has more than 6 years’ experience working in tax and finance. While she specializes in tax content, Katelyn has also written for digital publications on topics including insurance, retirement and financial planning and has had financial advice commissioned by national print publications. She believes that knowledge is the key to success and enjoys helping others reach their goals by providing content that educates and informs.