The Politics of Rental Car Taxes

November 11, 2005

At the beginning of 2004, just three local governments had rental-car taxes on the books. Today, there are some 44 rental-car tax proposals pending or approved nationwide. Why the sudden increase?

Sadly, it has nothing to do with good tax policy, and everything to do with politics.

Apparently the car-rental industry recently lost its lobbying group, making it easy prey for lawmakers. And since most rental-car customers are from out-of-state, local lawmakers can easily nail them with new taxes and face little political opposition at home. Here’s the complete story, via the Wall Street Journal:

As of this August, there were 44 rental-car tax proposals pending or approved by local governments, up from just three on the books in the beginning of 2004, according to Enterprise Rent-A-Car Co.

At Chicago’s Midway Airport, for example, a new charge of $3.75 per day went into effect on Sept. 1. Overall, the taxes range from 0.8% of the bill to $10 per rental. That might not sound like much, but an extra $10 per day charge can almost double the cost of renting an economy car in some cases, because base prices are near historic lows and some companies have been running aggressive weekend specials.

The flurry of taxation is partly due to the fact that the rental-car industry’s trade association was dissolved in June, leaving it with no effective lobby. The industry is notoriously fractious, making it harder for companies to jointly combat tax increases.

Also, rental cars are considered ripe for taxation because more than half of customers rent at the airport, so lawmakers assume they don’t live in the town and can’t vote down the proposed fee.

Here’s a table of some of the big cities with travel taxes, along with suggested ways to dodge the fees, courtesy of the WSJ.

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