The fuel tax is most states’ primary highway funding mechanism. Most fuel taxes are levied as a fixed number of cents per gallon. Many gas taxes are not indexed to inflation, potentially resulting in lower revenue year after year. At the same time, rising fuel economy and a growing share of electric and hybrid vehicles mean drivers buy fewer gallons for the miles they travel, so the same roads bring in less revenue.
To replace that eroding tax base, a growing number of states have turned to a mileage-based user fee (MBUF), also called a road usage charge (RUC), which charges drivers for the miles they drive rather than the fuel they use. Four states—Hawaii, Oregon, Utah, and Virginia—now run permanent mileage-based user fee programs, and other states are studying them.
But one practical barrier to implementation remains—an MBUF currently costs more to collect than a traditional fuel tax. Bringing that cost down is a key goal of current MBUF research and programs.
The target is a collection cost under 5% of revenue. With current technology, no per-mile program will match the fuel tax’s 1-5% range, but lowering collection costs to less than 10% is viable. A cost analysis by WSP’s Nate Bryer, presented at the International Bridge, Tunnel & Turnpike Association’s (IBTTA) 2024 meeting, put per-vehicle collection costs at the time at 13.5% to 27% of revenue for a third-party device-based program at a scale of one million vehicles or more, rising to 30%–61% at 30,000 vehicles or fewer. These third-party devices are necessary in some mileage-based user fee programs to collect the required mileage data and often need installation and replacement if damaged, which can be expensive.
However, Bryer’s data show that costs, as a share of revenue, fall with scale and decline further when a program drops the add-on device used to collect driver data, instead relying on options such as odometer readings. In that scenario, mileage-fee collection costs fall below the 5% target. A permanent MBUF program in a state should land within a 3.3% to 6.7% collection cost band.
None of the current four states has reached the collection cost target, though two are promising—Utah’s projections show that proposed program changes could bring down collection costs to just above 7%, and Hawaii’s new program estimates a cost of $0.27 per vehicle per year based on technology demonstrations done prior to launch.
The number of vehicles enrolled in an MBUF program matters. Administrative costs per vehicle are relatively fixed, meaning the more vehicles enrolled, the lower collection costs become as a share of revenue. Those costs are largely from building the infrastructure a mileage-based user fee program needs before launch, things like enrollment systems, mileage verification, billing, and support. This base cost gets spread across more accounts as enrollment grows, which is why scale is so critical.
Longevity does not guarantee scale. OReGO, Oregon’s MBUF program, launched in 2015 but has the lowest participation of the four programs, with around 800 enrolled vehicles.
Virginia runs the largest program in the country, but only 1% of eligible vehicles are enrolled.
Utah’s projections mirror that trend, showing that with 17,000 customers, collection costs reach 56% of revenue, but at 50,000, they fall to 7.5%.
One reason enrollment in MBUF programs has been low is that they are voluntary. In Utah, users self-select into the program, which limits top-end enrollment. As Oregon and Virginia show, voluntary enrollment produces low uptake. Designing a mandatory mileage-based user fee program from the start works better than launching a small voluntary program and hoping it grows.
Payment caps compound the problem. Utah caps payments at $180 per year, the most a driver can pay into the program. The cap encourages enrollment but sets a ceiling on revenue—the state forgoes payment from drivers with high mileage to build higher base enrollment.
The Utah Department of Transportation’s estimates show that making the program mandatory for electric vehicles and eliminating the cap would reduce collection costs as a share of revenue generated to 7.8%, putting it just above the target collection costs for a permanent program.
Another factor in the costs of collection is that different mileage-reporting options have different cost structures. Using existing infrastructure or touchpoints tends to produce lower administrative costs.
Hawaii, for example, collects odometer readings at pre-existing, periodic vehicle inspections, allowing it to implement its MBUF as a replacement for an existing registration fee surcharge. Drivers in Hawaii are already used to this interaction, and the Hawaii DOT estimates the added cost per vehicle to collect odometer information for an MBUF program per year will be an average of $0.27. Since it’s an established process, it also simplifies administering the program.
On-board diagnostic (OBD-II) reporting devices have higher costs. These devices are fragile and costly to replace. Utah has stopped supporting OBD-II devices, citing the decision to drop them as a major cost saver. Currently, Virginia and Oregon’s programs support them, though the Oregon Road User Fee Task Force has recommended that the program stop accepting OBD-II devices as an eligible option since they are leading cost drivers.
Other states, like Virginia, also allow original equipment manufacturer telematics as a reporting option. These are pre-installed systems made by the car manufacturers themselves that can be used to track miles driven. Since vehicles are made with these initially, the costs are lower than using an aftermarket, third-party hardware option like OBD-II devices. A presentation by Nikolaos Efstathopoulos of Arcadis, a leading engineering firm, estimated that original equipment manufacturer (OEM) telematic usage could lead to cost savings of up to 40% for an MBUF program or higher in a larger-scale program.
States looking to craft their own mileage-based user fee programs need to consider which factors can raise collection costs and make such a program less viable. The target collection cost needs to be between 5% and 10% for MBUFs to be a viable replacement for the fuel tax in the near future, and lessons such as avoiding OBD-II devices, prioritizing scalability, and avoiding annual payment caps will be key to keeping costs low in any future programs.