Local Seattle Residents Hit by Rental Car Tax That Was Sold as a Tax on Non-Residents

September 7, 2007

There’s one type of tax competition that every state and local lawmaker seems to relish: Who can enact taxes that collect the most from non-residents? After all, non-residents don’t vote.

Rental car taxes are among the favorites in this category, especially locations near the airport. Locals are told not to worry: people from out of state will pay the lion’s share of these rental car taxes, and we’ll get the government services.

But once the tax is enacted, all that talk about the in-state advantage vanishes. Washington state and King County have just dealt a body blow to the eco-friendly Seattle FlexCar company whose members are local residents sharing cars by the hour.

From the Seattle Times:

For the average FlexCar member, [the rental car tax] will add about a dollar to an hourly $10 charge when FlexCar must begin to collect the 9.7 percent state and King County car-rental tax in October. FlexCar operates only in King County in Washington state. It already pays the state and local sales tax which, together with the car-rental tax, is 18.6 percent.

FlexCar spokesman John Williams tried to remind state and local tax collectors that his customers are local: “Over 90 percent of the users are Seattle residents,” he said, pointing out that the car-rental tax was supposed to target visitors.

He might also have reminded them that FlexCar is a tax-paying company, unlike its competitors ZipCar and City Carshare which number among the annoyingly large group of companies that provide commercial services but have somehow persuaded the government to qualify them as nonprofit organizations that don’t have to pay income tax. [related]

But none of that would cut any ice with the Washington Department of Revenue which said it would consider collecting three years’ back taxes too.

Moral of the story: When a new tax is pitched as one that will mostly hit out-of-staters, beware.

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