Congress Considers Restrictions on State and Local Rental Car Taxes

June 17, 2010

On Tuesday the U.S. House Committee on the Judiciary's Subcommittee on Commercial and Administrative Law met for a hearing on H.R. 4175, the "End Discriminatory State Taxes for Automobile Renters Act of 2009." The bill would restrict state and local taxes on rental cars. Witnesses from the car rental industry and the National Consumers League drew on the same research to support H.R. 4175; the opposition witness Timothy L. Firestine representing various coalitions and leagues of state and county government.

Both producer and consumer groups were in favor of the bill, which they say would bring to a halt the eight-fold increase in the number of car rental taxes that have sprung up since 1990. To date, governments in 43 states and the District of Columbia have imposed 118 different excise taxes on car rentals in various jurisdictions, and more are pending.

The supporting witnesses focused on the following arguments: 

  • Car rental taxes represent a form of taxation without representation as many car rentals are undertaken by out-of-state visitors. This is also why car rental taxes are so popular with politicians. Witness Raymond Wagner quoted Senator Russell Long: "Don't tax you, don't tax me, tax that fellow behind the tree."
  • Car rental taxes are both regressive and discriminatory. The witnesses argued that, contrary to popular belief, car rentals are not only undertaken by businessmen who don't bear the cost. The taxes are also paid by people who cannot afford to buy a car: 19% of car rental excise taxes are paid by households earning less than $50,000 per year, and 7% of car rental taxes are paid by households earning less than $25,000 per year. Similar statistics show a greater usage of rental cars by African-American and Hispanic groups.
  • A significant proportion of car rentals are paid for by auto insurance during the claims process, and these costs are passed along to all policyholders.
  • There is often no link between the people paying the tax and the items the tax is spent on, which often include stadiums, performing arts centers, or culinary institutes.
  • The witnesses said that a 10% increase in car rental excise taxes results in 11% fewer auto purchases.

Firestine, representing amongst others the National League of Cities, argued that  H.R. 4175 represents a federal intrusion that would harm political accountability and encourage lobbying and industry-specific tax favoritism. He characterized the bill as removing states' ability to raise taxes as they see fit and said that "H.R. 4175 would, if enacted, open the door to unchecked federal oversight, and rewriting of, all state and local tax laws and classifications."

Of course the other side of "tax favoritism" is "tax discrimination," which is the current situation. The rental car industry has been subjected to a specific and target additional tax for no other reason than because it is politically advantageous to tax out-of-state visitors whose vote politicians will never need to garner.

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