There are three big problems with this. One, of course, is Big Brother. But I wouldn't mind if the government can prove to me that the pump only sends the odometer reading and my ID, and the only thing in any database anywhere (aside from my basic account info) is simply two numbers: beginning of year and current odometer readings. But I know that the Geheime Staatspolizei Department of Homeland Security will want pump, location, time, etc., stored too. Even if they met my criteria above, they can always sneak it in later.
The second is out of state drivers. With this in place I'd love to live in Nevada on the border with California. I'd drive in California all the time and pay no gas taxes, and I wouldn't have a chip with my Nevada-plated car.
The third is simple: government greed. Give it 10 years and I'll bet California will have a mileage tax and a gas tax.
the whole idea is foolish - if the complaint is that greater fuel efficiency lowers the revenue, just raise the gas tax. why attempt to install some massive sensor based mileage collection system everywhere - just raise the friggin' gas tax 5 cents a gallon and be done with it.