Like many states, Arizona is contemplating how to integrate peer-to-peer car-sharing arrangements into the state’s taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code. This session, the state legislature contemplated two proposals to regulate and tax peer-to-peer car sharing. Policymakers have an opportunity to clarify the tax treatment of peer-to-peer car-sharing firms and hosts while preventing the extension of discriminatory car rental excise taxes onto car sharing.
Senate Bill 1305 and House Bill 2559 both aim to establish such regulation as standards for liability insurance and vehicles subject to safety recalls. Senate Bill 1305 goes further, however, by extending Arizona’s rental car taxes and surcharges onto peer-to-peer car-sharing firms. Additionally, SB 1305 would permit airport authorities to regulate peer-to-peer car-sharing transactions conducted on airport property. While SB 1305 failed to pass in the House Commerce Committee, HB 2559 is awaiting consideration by the state Senate after being passed in the House in mid-March.
Arizona assesses a 5 percent state-level car rental tax in addition to the 5.6 percent state sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. on rental car transactions. Maricopa County, where Phoenix is located, assesses an additional 3.25 percent car rental surcharge to help fund Glendale Stadium and youth and amateur sports. Pima County assesses a flat $3.50 levy per car rental transaction to fund the Kino Sports Complex in Tucson.
Advocates of taxing peer-to-peer car-sharing arrangements as car rental transactions argue that Arizona’s existing car rental tax statutes apply to peer-to-peer car-sharing platforms. Municipalities in Arizona can assess the state’s transaction privilege tax on the rental of tangible personal property on intermediaries, which peer-to-peer car-sharing firms act as. Advocates of taxing peer-to-peer car-sharing firms also point to the fact that the taxes apply to parties “in the business of” renting vehicles. Peer-to-peer car-sharing platforms, they argue, are also engaging in “the business of” renting cars, so they should be subject to the tax. This interpretation of existing statute may be challenged in the courts if Arizona tries to use existing statute to levy car rental taxes onto peer-to-per car-sharing firms.
The lack of clarity over whether the existing statute governing Arizona’s transaction privilege tax applies to peer-to-peer car sharing should be motivation for the state to clarify the tax treatment of peer-to-peer car sharing. Extending Arizona’s transaction privilege tax to peer-to-peer car-sharing arrangements would harm Arizonans, as the tax would alter the behavior of visitors and tourists and potentially dissuade them from visiting the state. Ideally, policymakers would consider eliminating car rental excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es completely, but the state can move in the right direction by clarifying that these taxes are not extended onto peer-to-peer car-sharing firms.
As Arizona’s legislative session wraps up, policymakers have an opportunity to clarify the tax rules for peer-to-peer car-sharing firms. This has been made more important by the uncertainty surrounding whether the existing transaction privilege tax statute legally applies to the industry. Arizona could set an example for other states by providing a regulatory framework for peer-to-peer car sharing without extending an economically destructive tax onto an innovative business model.
Stay informed on the tax policies impacting you.
Subscribe to get insights from our trusted experts delivered straight to your inbox.Subscribe