Rental car taxes miss visitors, strike local minority population

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A recent study of rental car prices and taxation concluded that taxes on travelers manage to hit local residents harder than expected. Though, once upon a time, rental cars were focused on airports and served predominately visitors, now almost 50 percent of car rentals serve locals and end up taxing the lower income residents who do not own cars. That’s not what legislators had in mind when they slapped taxes on “visitors.”

This following content comes from internal working papers that were shared with me by the National Consumers League. They outline a real problem. But, what can be done about it? There’s the rub. Most of the taxes are local and having the federal government limit state taxation doesn’t sit well. Plus, having the states limit local city taxation is also a political no-no.

All that being said, taxes on car rental consumers have proliferated over the past 20 years. State legislatures and local governments have enacted these taxes often due to a mistaken belief that the majority of car rental customers are businesses or well-to-do visitors from out-of-town.

Governments in 43 states and the District of Columbia have imposed 118 different excise taxes on car rentals in various jurisdictions — representing more than an eight-fold increase in the number of such taxes since 1990. Additional excise tax proposals are currently pending across the country.

These state and local taxes are separate from, and in addition to, the airport fees that are imposed on rental car companies for various services provided by the airport authority. Airport fees must be spent for airports and supporting efforts. State and local taxes, however, can be used as governments see fit; hence, their popularity.

Lawmakers and proponents often refer to these car rental taxes as “tourist taxes.” The theory is that they cause no pain to local constituents. That is a mistaken premise.

According to the most recent data, since 2006, more than half of all car rentals take place in the local market — and this trend continues as Americans are choosing with increasing frequency to rent to otherwise supplement their transportation needs. Moreover, many renters cannot afford to own a car and rent only when they need to take a relative to a doctor’s appointment, visit family or head out of town on weekends. And car sharing, ridesharing, vanpooling, and other forms of virtual car ownership are becoming increasingly popular in urban areas and on college campuses.

As a result, local renters wind up being asked to shoulder the tax burden for boondoggle projects from which they often derive no benefit. For example, sports stadiums are often funded with these taxes. And yet, those who rent cars many times can’t afford to attend games at the very venues their taxes subsidize.

The Brattle Group of Cambridge, Massachusetts, examined local rentals (excluding airport rentals) that were paid directly by the renter (rentals in a consumer’s home town that were not reimbursed by an insurance company or employer). They found that taxes fall disproportionately upon racial minorities and substantially upon low-income renters. According to the study:

• Black neighborhoods generate over four times as many customer-paid rental transactions as their white counterparts. And nonwhites are approximately 75 percent more likely to rent than whites.

• In 2008, African Americans made up 12 percent of the US population, but accounted for 27 percent of overall retail rental car demand in rentals that were not reimbursed by a third party.

• In absolute terms, in 2008, African Americans paid over 13 million dollars in these car rental tax payments, while members of other minority groups paid another seven and a half million dollars during that same period.

• Twelve percent of all taxes on retail transactions were paid by members of households earning under $35,000 per year.

• Eighteen percent were paid by members of households earning under $50,000 per year.

The following tables detail construction and/or maintenance activity for professional sports facilities that have been funded, in part, by car rental taxes.
NBA_RENTAL_Taxes
Hockey_Rental_Cars
NFL_Rental Car

  • Mark

    “As a result, local renters wind up being asked to shoulder the tax burden for boondoggle projects from which they often derive no benefit.” I bet they get more benefit then the out of town renters get?

  • BobChi

    Well researched, with strong conclusions, though I agree it’s hard to see a good solution, apart from a change in overall taxation policy. I admire any local jurisdiction that says no to taxpayer financed stadiums and arenas.

  • AKFlier

    The principal beneficiaries are the already-rich team owners, who in many cases are already getting tax-exempt status — essentially having many of their expenses paid by the local and national public, whether we want to or not. Of course, they get to internalize any profits. I for one resent being forced to support the NFL, which provides no net economic or social benefit to the USA as a whole. If people want to support major league sports — i.e. male sports — let them use their own money.

    Good article, Mr. Leocha. You might also want to look into the manner in which TSA security flight segment taxes affect lower and middle income families in AK and HI. Such families have no practical alternative to flying in order to engage in interstate travel (a Consitutional right) but end up paying a disproportionate amount of security fees due to their home states’ distance from desired destinations (there are few direct flights from AK to many locations in the Lower 48, and we pay a fee for each flight segment flown). Just like rental car fees, these taxes aren’t necessarily being borne mainly by business travelers, but by those who can ill afford the extra expense.

  • Alex

    Liberal balderdash. Rental companies do not tax some races higher than others.

    The fact that one race may utilize rental cars more than another is irrelevant.

  • DCTA

    Telling me that there are 118 different excise taxes on rental cars tells me nothing – I’d like to know what the average is per jurisdiction – 3? 4? 6? What? The easy answer is 2.7 but I suspect there is more sophisticated date to be had.

    I would say that data from 2006 is also meaningless – it’s way too old. What is the impact on this since the proliferation of car sharing programs (like ZipCar). Especially in urban areas? it’s a whole different world vis a vis taxes with car sharing – I’m a very early adopter of ZipCar – a fabulous deal and I’m not noticing outrageous taxes. I think the addition of car sharing is is decreasing the taxes paid on such “rentals,” not increasing as you seem to argue.

    I think more recent data is required here.

    Oh, and now when I travel within the US, I quite often use a ZipCar in other cities rather than a rental car.

    Just out of curiosity – I took a look at my last ZipCar statement – the hourly rate on the car was $10.35 and the ONE tax – “DC Rental Car tax” was 10% or $1.35. I tend to take cars in 2 hour blocks, so for this particular vehicle it was $41.40 with a tax of $4.14 for a total of $45.55. I really don’t think this is so terrible. When you rent at the airport or train station, there are about 3-4 different taxes and local fees and they certainly add up to more than 10%. I’m just thinking that in urban areas at least, the situation has changed drastically since the most “recent” 2006 data.

    AND ZipCar and the other car-share programs consistently allow members to use ATM or Debit Cards for their membership which opens up availablity to the urban poor who may not have credit cards.

    I don’t know – just feels like more recent data would be helpful.

  • DCTA

    AND it’s really old data which is essentially, meaningless. AND I’M PRETTY MUCH A LIBERAL!!!!

  • DCTA

    Well researched in 2006 – it’s 2014 now.

  • stephen_nyc

    Of course, every one of those joints listed is named after a corporate john. What is a corporate john, you ask? Well, basically the buying side of world’s oldest profession: naming rights.
    I refuse to buy any of their products, if at all possible.
    As to the taxes on car rentals, what agency keeps track of race and income? It was not a question when I was a census worker in 2010.
    How did the Brattle Group go about asking the questions to get their answers?
    As for the boondoggles, like stadiums and olympics, make them get built and organized with no public money whatsoever (not even for the ‘infrastructure’ improvements) and then we’ll see how fast those team owners want to spend their money.

  • duvenstedter

    Some people don’t want to hear this message! They say just pay no attention to these 2006 statistics. They have misunderstood the period of the statistics, as defined in the article. The thesis sentence of the article reads, in part, “According to the most recent data, since 2006, more than half of all car rentals take place in the local market.” These critics have overlooked the word “since” in this sentence. The statistics are for the period from 2006 ON.
    The article does not give the ending date of the period, but this is not material. Is there any reason to think that things have gotten better for the poor at any time since 2006? Does anyone think that any state and municipal taxes have gone down since 2006? Does anyone think that since 2006, a greater proportion of any population of poor people anywhere now has more private automobiles and is now less dependent on rental cars? Consumption taxes always hit the poor the hardest.

  • DCTA

    Yes, I do in fact believe it has gotten better with the proliferation since 2006 of car sharing businesses. Again, they allow you to use a debit card, they include gas and insurance and there is one low-ish tax.

  • dcta

    Um….this is from months ago – is there new data or something?

  • dcta

    Really, why is this up again? Has something changed? Is there new data? Something made you want to re-visit this – what?