In our spotlight on business report, a sales tax exemption that has enticed people to buy electric cars in New Jersey for the past two decades is now being phased out.

Starting today, you'll be charged about 3% in sales tax on any electric vehicle purchase, and that will increase to the full sales tax next summer.

State leaders say electric vehicle sales are strong enough that the old incentive just isn't needed anymore.

But critics warn adding the tax back now will threaten the momentum for one of Governor Murphy's key initiatives in fighting climate change.

NJ Spotlight news budget and finance writer John Reitmeyer joins me now in studio to discuss.

So, John, what is the state saying?

Is its reasoning for removing it at this time?

Why do they feel comfortable that taking the sales tax back on these purchases is good to do now?

Yeah, I think if you look at the data, what you see is there has been a big uptick in the number of electric vehicles that are now registered in New Jersey.

And this has been a 20 year tax break now.

And we've seen this whole industry mature from when you barely saw any electric vehicles driving around on our roadways to now, according to the state's data, they're up around 10% of total registrations.

So in a lot of ways, the idea is that this incentive has sort of worked.

But also, you have to keep in mind that the state budget itself is now in a situation where there's more spending on an annual basis that's occurring than the amount of revenue that's coming in on an annual basis.

And so this is the type of tax policy change that we often see when we're in situations like this where because of the spending ambitions, you sort of have to change your tax policies to get a little closer to where your revenues can come closer to where your annual expenditures are.

Because if there's too big of a gap, that's when we run into situations where we see credit rating downgrade.

So the state is trying to thread that needle as well.

So it comes down to the fact that the state also needs this money.

The incentive worked, but the state also needs to bring in a little bit more cash.

It's a little bit of that for sure.

And when you think about it, you know, electric vehicles, like a lot of vehicles, we've seen inflation in this area.

Right.

And with prices up, it's easy to spend now 40, $50,000 on an electric car.

And so when you think about this tax break, you know, on the other end of it, people with lower incomes are just seeing their say They're taking busses or trains using NJ Transit.

The fares just increased in July.

They're having to pay more for their mode of transportation.

And a lot of the users of mass transit have lower incomes than those who now have the ability to buy an electric vehicle.

So it's all part of that balancing act, multiple policy goals that sort of intersect here.

And the decision was made to do a phase out.

So again, starting today, we'll get a half sales tax on the purchase, rental or lease of an electric vehicle.

And then starting July one next year, we'll have the full 6.625% sales tax charged on those transactions.

But the state also, correct me if I'm wrong, put in place a new fee when you buy electric vehicles.

So what about this concern that critics are making that some of this is going to incentivize folks?

That's right.

So when you talk to people in the environmental community or automotive industry lobbyist, they will immediately bring up this new registration fee.

Now, that's for the Transportation Trust Fund, which is an off budget account that funds capital improvements to our transportation network.

So that can be roads, bridges or mass transit.

Because of this uptick in popularity of electric vehicles, the main source of revenue for the transportation trust fund is the gas tax.

Well, of course, an electric vehicle user doesn't pay the gas tax.

And so there was an idea that they needed to start to contribute to the maintenance of the transportation networks, the roads that they're using.

And that's where this fee came in.

But when you put this fee and layer in the phase out of the sales tax exemption, it does start to increase costs pretty dramatically on an annual basis for an electric vehicle owner.

What about rebates?

That was another carrot that they dangled to entice people.

Will they stay or is the state making any exceptions to put more money toward rebates?

Yeah, and this is another example of threading that needle.

So the state has offered tax incentives to people on a more limited budget so they can help help them afford an electric vehicle.

And the funding for those tax breaks would actually increased in the most recent state budget.

So, you know, the Murphy administration, if you look at its record, a lot of targeted tax breaks instead of blanket tax breaks.

And I think that's what we're seeing here.

The blanket sales tax exemption is going away, but more money going to these targeted tax breaks to help people with lower incomes afford an electric vehicle.

John Reitmeyer for us.

John, thanks as always.

You're welcome.