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Washington state EV sales tax exemption disappears in May

It will end earlier than anticipated, thanks to better-than-expected sales of electrified vehicles.

2017 Hyundai Ioniq Electric
Wayne Cunningham/Roadshow

The state of Washington has a sales tax exemption in place to help spur sales of EVs and plug-in hybrids, and it worked so well that it's actually disappearing sooner than the state expected.

Washington will phase out its electrified-vehicle tax credit at the end of May, Automotive News reports. The credit, which went into effect in 2016, was set to phase out after 7,500 eligible vehicles were titled, which happened on April 4.

2017 Hyundai Ioniq Electric

Will sales fall off a cliff? Probably not, but this isn't going to help matters any.

Wayne Cunningham/Roadshow

The state's credit program is actually pretty strict. It covers alternative-energy vehicles (EVs, fuel cell vehicles, natural gas, propane) and plug-in hybrids with an electric range of at least 30 miles. It only applies to vehicles with a base-model price of $42,500 or less, so Tesla Model S and Model X owners aren't sucking up all the benefits. The tax credit is capped at $32,000 per vehicle, and it's applied at the dealership, which won't collect the exempt taxes during the sale transaction.

The list of supported vehicles is actually quite thin. The only supported plug-ins are the Chevrolet Volt, the Chrysler Pacifica Hybrid and the Honda Clarity. The EV list is a bit bigger, covering all the expected players -- Chevrolet Bolt EV, Hyundai Ioniq Electric, Tesla Model 3 -- as well as ZEV-state "compliance cars" like the Ford Focus Electric and Honda Fit EV.

After May 31, the credit is gone forever, and it will be interesting to see what happens after that. Georgia scrapped its $5,000 tax credit, and sales of qualifying vehicles dropped nearly 90 percent. The market has definitely changed for the better since 2015, so the drop may not be that severe, but it's myopic to assume that removing an incentive like this won't affect sales negatively.

The market might be even more difficult for automakers when the $7,500 federal tax incentive starts drying up. This credit is tied to each automaker's sales, with a drawdown beginning once an automaker sells 200,000 qualifying vehicles. For Tesla, that's expected to happen some time in 2018.