State and federal officials hope the system will transform how states tax road use.
"No other state is doing a test like this," said David Cox, Oregon administrator for the Federal Highway Administration.
The agency has contributed about $900,000 of the $1.9 million project. State transportation funds make up the rest.
As consumers turn to more fuel-efficient cars and gas-electric hybrids, states are losing valuable road revenue, said James Whitty, a manager at the Oregon Department of Transportation. Oregon's fuel tax currently provides 68 percent of revenue in the state highway fund, which pays for road maintenance and construction.
A mileage-based tax would ensure that those drivers still pay for road maintenance, he said, ultimately replacing the fuel tax.
While working on the project, Oregon State professors and students have focused on creating a wireless system that would be invisible to drivers.
The first device, on the vehicle, monitors how many miles the driver travels between refueling. One version acts like a basic odometer. The other version relies on GPS satellites to pinpoint the vehicle's location within a certain zone, whether it's downtown or on the highway.
Once at the gas station, the vehicle's device sends a short-wave radio transmission to a device on the pump. The pump device tallies the per-mile tax, and adds it to the regular price of gas, replacing any fuel tax.
It would cost roughly the same, Whitty said, about 0.125 cents per mile.
There are even provisions to charge higher or lower rates based on the location or the time of day, such as evening rush hour on crowded roadways, said Oregon State professor David Porter, one of the project's leaders.
At this point, the system charges only mileage taxes within Oregon, Porter said. The meter stops running once the driver crosses state lines. But transportation officials hope to see the system go nationwide.
California and Washington have already expressed interest in the program, Cox said. And officials from 15 states recently met at the University of Minnesota to discuss new research.
The federal government doesn't plan to mandate such a system, Cox said, so the states must persuade vehicle manufacturers to install the devices in new cars and trucks.
The new system would apply only to lightweight, personal vehicles, Cox said. Most commercial vehicles already pay a tax based on vehicle weight and miles traveled, to cover road wear and tear.
Although the mileage tax system makes no distinction between a small car and a bulkier sport utility vehicle, transportation officials said it's fair to charge an equal rate for miles driven.
"The price of gas is enough to be a disincentive to owning and driving an SUV," Cox said.
State lawmakers say they're reluctant to approve the new system now, noting it will be years before the devices are ready for mass production and implementation. The project is slated to end in 2007.
"In the long run, we're going to need a replacement for the fuel tax," said Sen. Bruce Starr, a Republican. "Is this the right answer? I'm not sure yet. But it's one of the solutions we're considering."