States Lead the Way on Autonomous Vehicle Regulation as Federal Law Looms on the Horizon

May 25, 2022

Since 2012, the federal government has published voluntary guidance that empowers state governments to create autonomous vehicle (AV) statutory frameworks to allow and/or incentivize autonomous driving technology research and development. Over the last decade, this state-focused approach has motivated 40 states, plus Washington, DC, to enact various levels AV laws that allow for testing on non-public roads, fully autonomous operation on public roads, and/or for-profit on-demand transportation services.

In January 2020, the US Department of Transportation (DOT) and the National Highway Traffic Safety Administration (NHTSA) issued the most recent, and expansive, voluntary AV regulatory framework that will serve as a blueprint for future autonomous driving technology laws: Ensuring American Leadership in Automated Vehicle Technologies: Automated Vehicles 4.0 (AV Policy 4.0).

AV Policy 4.0 is the most comprehensive guidance on developing AV technology. AV Policy 4.0 was a joint effort between the DOT and the White House chief technology officer. This was the first time that senior-level White House officials became involved in developing regulatory guidance for AVs in order to coordinate efforts governing self-driving vehicles and artificial intelligence across 38 federal agencies and commissions. This development suggests that AV technology may finally be nearing a point where a federal regulatory framework is within reach.

AV Policy 4.0’s voluntary guidelines expanded on three previous versions of the framework and placed a stronger emphasis on passenger safety, modernization, and remaining technology neutral. AV Policy 4.0 also updated the guidance on privacy, cybersecurity, patents, and accessibility of vehicles. Former US DOT Secretary Elaine Chao explained, “Such innovation requires appropriate government oversight to ensure safety, open markets, strategic allocation of public resources, and protection of the public interest. It should not be the role of the federal government to pick winners and losers.”

Funding Opportunities

In order to incentivize AV research and development, AV Policy 4.0 provides that AV companies are eligible for a federal income tax credit of up to 20% of the eligible spending for research and developmental activities.

Moreover, AV Policy 4.0 explains that the US Department of the Treasury and Internal Revenue Service (IRS) allow for the immediate expense of the following:

  • Research and developmental activities that are experimental in nature with the purpose of eliminating uncertainty when developing or improving a product.
  • The costs of qualified business property purchased after September 27, 2017, and before January 1, 2023.
  • The cost of purchasing new or used manufacturing equipment, the AVs the companies operate or lease, and computer hardware and software.
  • Startup and organizational costs of up to $5,000 (for each category) in the year the business begins operations. The $5,000 deduction is reduced by the amount of the startup or organizational costs that exceed $50,000; the remainder of the costs may be deducted over a 180-month period.
  • Since AV manufacturers, particularly new market entrants, may have more operating expenses than revenues in their early years of business, the tax code allows the carryover of net operating losses to offset 80% of taxable income generated in future years.

Under the tenure of DOT Secretary Pete Buttigieg, in 2021, DOT issued a standing general order that requires all state departments of transportation and AV stakeholders to submit crash reports and information on incidents to better identify safety concerns and risks in the autonomous driving sector. On January 6, 2022, Secretary Buttigieg called for federal AV regulations during his keynote address at the Consumer Electrics Show in Las Vegas: “[C]onsider autonomous vehicles. For all their potential, they’ve also raised complicated—even philosophical—questions about safety, equity, and our workforce.”

State Regulations

In the absence of federal AV regulations, several states, including Michigan, California, and Arizona, have led the way as the most forward-thinking and innovative hubs of autonomous technology development in the United States.


In 2013, the State of Michigan enacted Section 257.665 of the Michigan Vehicle Code, which was the most progressive AV legal framework in the United States at the time. The purpose of Section 257.665 was to create a balanced, industry-friendly, and safety-conscious regulatory scheme that would allow Michigan to continue to be the leader in automotive innovation and foster a community of connected vehicles and next-generation mobility companies in Detroit and Ann Arbor.

Of note, Michigan was the first state to extend Manufacturers Licenses Plates, or M-Plates, for AV testing to companies beyond traditional OEMs, so long as these stakeholders followed a series of statutorily prescribed safety requirements.

As noted in a Morgan Lewis presentation with Kelly Bartlett, the connected and automated vehicle specialist at the Michigan Department of Transportation, the success of Michigan’s approach was immediate and, soon enough, even more advanced legislation was needed to keep up with the technology. In 2016, Michigan responded to the industry’s call and enacted Section 257.665b, which is known as the Safe Autonomous Vehicle (SAVE) Project. In particular, the SAVE Project permits eligible AV stakeholders to develop automated vehicle fleets that provide on-demand transportation to the public within defined geographical boundaries.

Most recently, in January 2022, the Michigan announced the creation of the first-of-its-kind connected and automated corridor between Detroit and Ann Arbor. This corridor will feature dedicated AV lanes and facilitate faster and safer autonomous transportation at all levels.


In 2012, the State of California became the third state to enact legislation that allows self-driving vehicles to operate on state roads, and ordered the California Department of Motor Vehicles (DMV) to promulgate AV-specific safety regulations.

In response to this legislative charge, the DMV launched an AV tester program in 2014, which laid out stringent test driver requirements. To date, approximately 60 AV stakeholders hold testing permits under this program. In 2018, the DMV established the AV Tester Driverless Program with an even stricter set of requirements. Currently only four AV stakeholders hold permits under the AV Tester Driverless Program.

On the horizon, there are several shared autonomous vehicles (SAV) projects in the works in California, including the Livermore Amador Valley Transit Authority SAV Project, which began last June and provides eco-friendly transport between bus routes and Bay Area Rapid Transit in the greater San Francisco area.


Through a series of gubernatorial executive orders issued in 2015 through 2018, the State of Arizona lessened its regulatory barriers for AV stakeholders to conduct semi- and fully autonomous testing within its borders. Of note, in 2018, Arizona dropped the requirement to have a safety driver present in the AV, so long as the autonomous driving system was being monitored remotely.

Further, Arizona created the Institute for Automated Mobility Consortium, which is designed to embrace innovation and collaboration by creating research, development, testing, and evaluation capabilities for AV systems.

Finally, by way of a 2018 executive order, Arizona allowed for the testing and operation of for-profit AV on-demand transportation service. Currently, Arizona has more than 600 AVs being operated by more than a dozen AV stakeholders.

More information on the regulatory framework for AVs can be found in All Things Autonomous – Regulatory and Commercial Considerations for AVs, part of Morgan Lewis’s Automotive Hour webinar series.