Exploring Road Taxes and Funding Responsibilities in 2025: A Call for Change

The Evolving Landscape of Road Taxes in 2025

Road taxes and funding are essential components in maintaining and improving America's transportation infrastructure. As we navigate through 2025, the relationship between user fees and road spending is increasingly under scrutiny. Federal, state, and local governments raise revenue through a combination of motor fuel taxes, vehicle registration fees, and tolls. However, current practices are proving insufficient, particularly as inflation and a shift toward electric vehicles begin to erode traditional funding sources.

Widening Funding Gaps

While these road taxes and fees were designed to reflect the usage of roads, inflation and fuel efficiency are causing significant revenue declines. Particularly concerning are the statistics showing that only three states—Delaware, Montana, and New Jersey—currently generate enough revenue to meet their highway spending needs fully. The remaining 47 states must siphon funds from general tax revenues, other than those related to road use, to cover their infrastructure expenses.

States with the lowest proportions of highway funding derived from road-user taxes, such as Alaska (19.4%) and North Dakota (35.1%), highlight the urgent need for states to rethink funding mechanisms, as they overwhelmingly depend on severance taxes rather than traditional road user fees.

Emerging Challenges: The Rise of Electric Vehicles

The conversation shifts as we increasingly see electric vehicles (EVs) taking to the roads. With their growing presence, less fuel is being consumed, leading to diminished gas tax revenues. Indeed, while EVs represented only 1.3% of current vehicle registrations in 2023, the sales of these vehicles surged, constituting over 9% of all vehicles sold that year. This dynamic presents a paradox: policies aimed at reducing emissions are inadvertently destabilizing the financial health of transportation systems.

States are beginning to implement registration fees on EVs to mitigate some of these losses. However, these efforts are often viewed as temporary fixes. Policymakers are beginning to consider more sustainable alternatives, like mileage-based user fees (VMT), to adapt to changing transportation and environmental needs.

Future Predictions: Funding Models in Transition

Forecasting the long-term sustainability of state transportation budgets reveals a significant shift ahead. Many states are expected to experience declines in gas tax revenues and face rising operational costs, making the traditional models of funding inadequate. In California, where EV dominance is high, transportation revenues are forecasted to decrease by $4.4 billion over the next decade.

Moreover, experts are advocating for a revamped funding structure based on direct user fees that reflect actual road usage, not just fuel consumption. Implementing a vehicle miles traveled tax could address the disparities in revenue generation, as it would account for all vehicles on the road, including EVs. This potential reform offers a promising route toward stabilizing revenues for transportation funding.

Addressing the Funding Shortfall: Urgent Action Required

The immediate need for legislative action is clear, as many states are grappling with significant deficits in transportation funding. Legislators in places like Maryland and Oregon are already implementing temporary measures, such as increases in vehicle registration fees, but these are not long-term solutions. As inflation erodes purchasing power, the structural issues underlying transportation budgets give rise to a critical point in discussions about sustainable solutions.

The movement towards alternative funding structures, such as road user charges or taxes on public EV charging transactions, indicates that states are starting to consider diverse avenues for achieving fiscal stability. As road usage evolves, so too must the methods for financing infrastructure needs.

The Path Forward: Collaborating for Sustainable Solutions

As we evaluate the future of road taxes and state funding, the need for collaboration among policymakers, stakeholders, and constituents becomes increasingly vital. By building broad coalitions to support innovative funding solutions, states can foster a more equitable and effective way to maintain vital transportation infrastructures while accommodating emerging vehicle technologies.

Maintaining the integrity of the road systems that contribute significantly to economic vitality requires a concerted effort to revise outdated revenue frameworks. As the dynamic between users, vehicle types, and funding models shifts, the responses from statehouses will determine the functionality and safety of transport systems for years to come. Restoring a sustainable, effective approach to road taxes and transportation funding is not just essential—it is urgent.

For CPAs and business owners who need to gain a better understanding of how these funding mechanisms may impact their operations, the time to engage with lawmakers and advocate for transparent, fair policies is now. A comprehensive strategy is required to derive real benefits from a simplified and equitable road funding system.