Washington State has passed a new law that imposes a tax on zero-emission vehicle (ZEV) credit sales, a move that primarily targets Tesla. The bill, HB 2077, was approved by the Legislature over the weekend and now awaits the signature of Governor Bob Ferguson.
The new tax was introduced in response to Tesla’s ability to generate and sell large surpluses of ZEV credits to automakers that cannot meet Washington’s strict zero-emission vehicle requirements. Washington follows California’s ZEV program, which mandates that a growing percentage of vehicles sold in the state must be electric or hydrogen-powered—starting at 22% in 2025 and increasing over time.
Companies falling short of these targets can purchase credits from those who exceed them, creating a secondary market worth billions.
Tesla, which of course only manufactures electric vehicles, means it has consistently produced a surplus of ZEV credits. Critics, including Washington lawmakers, say the original intent of the ZEV program was to encourage electrification—not to create a profit center for a single manufacturer.
“We never intended for this program to be a source of windfall profits for one manufacturer,” said Rep. Joe Fitzgibbon (D-Seattle), the bill’s primary sponsor.
How Washington’s New ZEV Credit Tax Works
Under HB 2077:
- ZEV credit sales will be taxed at a 2% rate based on the sale price.
- Banked ZEV credits (credits held for future use) will be taxed at 10% of the average market value, as determined by the Washington State Department of Revenue.
Tesla Pushes Back Against Washington’s EV Credit Tax
Tesla opposed the legislation during public hearings. Jeff Gombosky, speaking on behalf of Tesla, urged lawmakers to “put the bill down,” arguing that the tax would diminish the value of ZEV credits and discourage automakers from participating in the program.
Gombosky also warned that Washington could set a precedent that other states might follow, since 17 states currently mirror California’s ZEV standards. (via King5)
Despite Tesla’s objections, Washington lawmakers moved forward with the bill, aiming to “level the playing field” between established electric vehicle manufacturers and traditional automakers still transitioning to EVs.
What’s Next?
Governor Ferguson has 20 days to sign, veto, or allow the bill to become law without his signature. If the bill is allowed, Washington could soon become the first state to directly tax ZEV credit sales—a decision that could have affects far beyond its borders.
Although Tesla is the primary target for now, the new tax framework is designed to apply to any electric vehicle manufacturer that generates and sells ZEV credits in Washington. As the electric vehicle market continues to grow, other companies could eventually fall under the law’s scope if they begin building credit surpluses.
