Revenue-strapped states pull back on hybrid auto tax breaks

FREEHOLD TOWNSHIP, N.J. -- Sal Failla, who thinks of himself as a friend of the environment, said he would have liked to have bought an eco-friendly Prius.

But the 50-miles-to-the-gallon, $24,000-plus hybrid wasn't in the 25-year-old's budget. He bought a Toyota Corolla recently , which has a manufacturer's suggested retail price range of $16,300 to $20,250.

Exemption from New Jersey's 7% sales tax — which would have saved him $1,680 — might have pushed him to go green with the purchase, said Failla, of Matawan, N.J.

But the state isn't likely to act this year on a proposed sales tax exemption for fuel-efficient vehicles, legislators say.

As New Jersey and other states look to get out of financial crunches, exemptions and credits aimed at putting car buyers in hybrids and high-mileage automobiles are becoming harder to find.

The two-year proposal, which would apply to vehicles that get 40-plus miles per gallon and energy-efficient appliances, is projected to cost at least $79 million. The state already is faced with an $8 billion deficit, legislators say.

"Good bills, wrong timing," Republican state Sen. Tony Bucco said. "These things are great in a good economy. But when we're down on revenues, it's a little difficult to give out additional credits and rebates."

And "$79 million is a lot of pocket change," Bucco said.

An exemption, along with the hybrids' better mileage, would make sense for buyers, Failla countered. "It would be like giving you back some of the money you're paying extra for that (more expensive) car."

Incentives for pure electric and alternative-fuel vehicles are still being offered in states including Georgia and Illinois, but Connecticut, South Carolina, New Mexico and Washington are among states where at least some tax exemptions and credits for fuel-efficient cars and hybrids have expired, according to the U.S. Department of Energy Alternative Fuels and Advanced Vehicles Data Center.

•InConnecticut: A nearly 20-year-old sales tax exemption for alternative-fuel vehicles and, later, hybrids was discontinued last year. The state, which is facing a $3.7 billion deficit, estimated in 2009 it was losing up to $2 million a year in revenue on it.

•In Washington: A state sales tax exemption for hybrids and high-mileage cars expired in January.

•In South Carolina: A $2,000 tax credit for plug-in hybrids ended last year.

•InNew Mexico: An excise tax exemption for new cars that get at least 27.5 miles per gallon expired in 2009.

On the federal level, a tax credit of up to $3,400 for hybrid gas-electric cars expired in December 2010.

Getting more gas-guzzlers off the road couldn't hurt in New Jersey: The Monmouth and Ocean county area has the 15th-worst air quality in the nation, according to Environment New Jersey. More important, said Republican sponsor Sen. Jennifer Beck, the bill would decrease reliance on fossil fuel from outside the country.

With hybrids making up about a 2.5% of market share this year, according to J.D. Power and Associates, some environmentalists say states can't afford to give up exemptions.

A Prius has nearly twice the fuel economy of the average car sold today, said Therese Langer, Transportation Program Director for the American Council for an Energy-Efficient Economy in Washington, D.C.

If the fuel economy of all vehicles sold was doubled, the U.S. could cut its gasoline use, and consumer spending on gasoline, in half, Langer added.

Automobile greenhouse gas emissions also would be cut in half, she said.

"Federal tax credits may be scarce in the near future due to budget constraints. Many states will face similar constraints," Langer said.

"But increasing fuel efficiency brings huge net economic benefits over time and provides a buffer for consumers against gasoline price spikes."