On Monday, Georgia’s House of Representatives passed House Bill 378, which would extend the state’s municipal rental car 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. onto marketplace facilitators of rental motor vehicles, including peer-to-peer car sharing firms. This proposal, like other proposals contemplated by policymakers in other states, goes in the wrong direction by expanding a 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. that violates the principles of sound tax policy.
Georgia is one of a few states that lacks a rental car excise tax at the state level, though localities may impose their own excise taxes. Atlanta, for example, levies a 3 percent local excise tax on rental car services. The revenue from the excise tax is used to “promote industry, trade, commerce, and tourism,” in addition to capital outlay projects related to entertainment events and concession facilities.
Rental car excise taxes are unsound tax policy, as the tax targets one activity—renting a motor vehicle—that disproportionately affects nonresidents of the taxing jurisdiction. This creates unintended economic consequences for residents by reducing economic activity created by visitors and exporting the tax burden onto people who do not benefit proportionately from the jurisdiction’s government services. Instead, visitors should contribute to their use of government services through such things as the 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. and the gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. .
HB 378 classifies peer-to-peer car sharing firms as marketplace facilitators with respect to the rental car excise tax, which makes them responsible for collecting excise tax paid by consumers to car sharing hosts. This is a similar structure to how sales taxes are collected by platforms for remote sales in many states.
Extending the local rental car excise tax onto peer-to-peer car sharing firms compounds the problems with the rental car excise tax by expanding its reach. Rather than expanding the tax, Georgia policymakers should consider ways for localities to replace the revenue they rely on from rental car excise taxes. This would end the debates surrounding the equitability of the tax treatment of rental car firms and peer-to-peer car sharing arrangements, treating car rental and peer-to-peer car sharing neutrally in the tax code.
Georgia has avoided making the mistake of imposing a discriminatory excise tax on rental cars at the state level, and can go further by repealing municipal rental car excise taxes as well. As the state Senate considers extending municipal rental car excise taxes to peer-to-peer car sharing, policymakers should keep the bigger picture in mind and consider ways to replace municipal rental car excise tax revenue with a sounder source of revenue.
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