NJ electric car buyers must now pay sales tax, ending big incentive

When he bought his Tesla S eight years ago, Charlie Cerussi had a strong financial incentive to make the switch to an electric vehicle. If he purchased the car in New Jersey, there was no sales tax.

The exemption saved motorists thousands of dollars on a new vehicle, with the goal of helping New Jersey reduce greenhouse gas emissions and do its part to combat climate change.

"It was on the expensive side," Cerussi, 55, of Middletown, said of his Tesla. The sales tax exemption "helped justify the cost."

That incentive is coming to an end. Electric vehicles buyers in New Jersey for the first time are facing higher taxes and fees in a bid by lawmakers to raise revenue for the state budget and the Transportation Trust Fund that pays for infrastructure projects.

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The sales tax helped the state fill a budget gap, but the Murphy administration said the time is right to bring EVs on equal tax-footing with gas-powered cars, noting prices on no-emission vehicles have come down and buyers still have access both the state and federal incentives.

Among them: New Jersey's budget set aside $50 million for rebates of up to $4,000 for low- and moderate-income residents purchasing EVs; and the federal Inflation Reduction Act offers tax credits of up to $7,500 for EV buyers.

But the decision is drawing a rebuke from automakers and environmental groups who say it will make Gov. Phil Murphy's goal of having 330,000 plug-in EVs registered in 2025 even more difficult to reach.

"The previous generous incentives that the state offered prospective EV customers have disappeared from the marketplace at precisely the time when the mandates are becoming more or difficult to achieve," said James Appleton, president of the New Jersey Coalition of Automotive Retailers, a trade group.

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As of June, the state had 185,458 registered EVs, including 16,033 in Monmouth County and 8,554 in Ocean County, accounting for about 2.6% of total registered vehicles. By comparison, there were 154,153 registered EVs the previous year, accounting for 2.2% of total vehicles, according to state data.

But EV sales accounted for 12.2% of all vehicle sales in New Jersey in 2023, up from less than 5% in 2021. And New Jersey trails only California, Florida, Texas and Washington in the total number of EV registrations, according to the U.S. Department of Energy.

Murphy has only ramped up the state's EV goals. He wants 100% of new vehicle sales to be electric by 2035.

To boost EV sales, New Jersey was one of two states — Washington being the other — that exempted EVs from sales taxes. (The exemption didn't apply to plug-in hybrid vehicles).

The tax break helped make EVs more financially competitive. The average price for electric cars in September was $56,351, compared with the average price for gas-powered cars of $48,397, according to Kelley Blue Book.

The sales tax hike on EVs came as Murphy and the Legislature were facing a $2 billion structural gap between projected annual revenues and expenditures on a $56 billion budget that went into effect July 1, according to NJ Spotlight News.

The budget calls for the EV sales tax exemption to be phased out. Buyers of zero-emission vehicles from Oct. 1, 2024, to July 1, 2025, will pay a 3.3125% sales tax. After that, they will pay the full 6.625% sales tax.

Meanwhile, the EV buyers will face a registration fee of $250 for 2024, which will increase by $10 each year on July 1 until 2028. New Jersey collects four years of registration fees up-front, making the total cost $1,060.

"New Jersey’s sales tax exemption is 20 years old, and was enacted in a completely different environment for EVs," the Murphy administration said in a statement.

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The Sierra Club's New Jersey chapter, an environmental group, said the tax and registration fee stood in contradiction to the Murphy administration's climate action goals announced last year.

"We need to be making it easier and more affordable for folks to choose clean transportation options, not more difficult," Anjuli Ramos-Busot, the chapter's president, said in March, when Murphy reauthorized the Transportation Trust Fund.

The tax policy will test an economic theory: When it comes to EV sales, do financial incentives work? Or are motorists who buy them driven by other motives, such as protecting the environment?

Robert Avison, general manager of Circle Auto Group in Shrewsbury, said his dealership is getting an influx of Chevrolet and Hyundai EVs that have been selling well.

Now consumers leasing or buying an EV will face higher monthly costs because of the sales tax. On a $60,000 vehicle, Avison estimated, drivers with a 36-month lease would pay another $56 a month, while drivers with a 60-month loan would pay another $33 a month.

It definitely considerably adds to the cost of the vehicle," Avison said. "But I don't think it's enough to deter people or make them think twice about purchasing one."

"I don't think EVs were going to be sales tax-free forever," Avison said. "At some point, I guess, it's a good sign that EV sales are really starting to take a foothold in the state of New Jersey, because you can see now that they see the need to start implementing the tax on them. But I don't think it's going to really have a long, lasting impact on the sale of these cars. I think people who want to drive EVs are going to drive them whether there's a tax on them or not."

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Not everyone is taking issue with lawmakers' decision.

Thomas Bracken, president and chief executive officer of the New Jersey Chamber of Commerce, said the state's transportation system is a lifeline for the economy, but EV drivers haven't had to shoulder the cost to maintain and repair the roads they use.

Not only have they avoided sales taxes, but also they have avoided the state's 42.3 cent-per-gallon gas tax since they never need to fill up.

"Those cars use the roads and tear up the roads just like other vehicles," Bracken said. "So I think it's ultimately fair that there be some kind of equality to keep the infrastructure healthy, and this is the way to do it."

To others, though, the move to begin charging a sales tax and registration fee on EV users — just as the state needs to ramp up EV sales to meet its goals during the next decade — seems incongruous.

"It's inconsistent with their stated policy of being a leading EV state," Appleton from NJ CAR said.

Michael L. Diamond is a business reporter at the Asbury Park Press. He has been writing about the New Jersey economy and health care industry since 1999. He can be reached at [email protected].