State of Washington Imposes Tax on Sales of Tesla's Zero-Emission Vehicle Credits
Washington State has passed a new law, HB 2077, aimed at Tesla, taxing the sales of zero-emission vehicle (ZEV) credits. This move could set a precedent for other states, as 17 states currently mirror California's ZEV standards.
The new law will impose a 2% tax on the sale price of ZEV credits, affecting Tesla, which has consistently produced a surplus of ZEV credits. The bill's passage could potentially affect states beyond Washington's borders, as Tesla's ZEV credits are traded nationwide.
Rep. Joe Fitzgibbon (D-Seattle) is the primary sponsor of the bill, stating, "We never intended for this program to be a source of windfall profits for one manufacturer." Critics, including Washington lawmakers, argue that the original intent of the ZEV program was to encourage electrification, not to create a profit center for a single manufacturer.
The new tax framework is designed to apply to any electric vehicle manufacturer that generates and sells ZEV credits in Washington. If the bill becomes law, Washington could become the first state to directly tax ZEV credit sales.
The One Big Beautiful Bill Act (OBBBA) signed in 2025 eliminates federal EV tax credits, including those that Tesla customers have previously benefited from. This removal increases the effective cost of EVs by up to $7,500, reducing consumer incentives to buy EVs.
Tesla is actively warning consumers that orders must be delivered by September 30, 2025, to qualify for the tax credit. This urgency suggests Tesla anticipates a potential drop in demand once the credit disappears.
The loss of these tax incentives is forecasted to substantially reduce EV sales by up to 40% over the next five years and could lead to the closure of up to half of U.S. EV factories, including those of Tesla and others. Moreover, the phasing out of credits for domestic battery and critical mineral production will slow the U.S. EV industry's progress.
Before this federal rollback, states like Washington had adopted California's ZEV mandates requiring increasing sales of zero-emission vehicles. However, recent federal actions under the Trump administration revoked EPA waivers supporting these state mandates, complicating the regulatory landscape and further challenging EV market growth.
In summary, Washington's new ZEV credit tax—essentially the termination of federal EV tax credits—will increase Tesla vehicle prices for consumers, reduce incentives to buy EVs, and potentially slow Tesla’s and other manufacturers’ sales and production in the U.S. Tesla is actively attempting to mitigate this impact by pushing deliveries before the credit expires.
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