Rental Car Tax an Unfair Way to Fund Tri-Rail

Tri-Rail, the commuter rail system serving southeast Florida, has been massively successful over the last few years. Fueled by (until recently) soaring gas prices, ridership has doubled since 2005. However, even as ridership has risen, Tri-Rail’s funding is in doubt, as the three counties within its service area face budget crises.

Tri-Rail is therefore seeking a tax increase from the state to provide additional funding. Unfortunately, Tri-Rail and its backers have chosen a particularly incongruous and inappropriate revenue source to pursue: a $2-per-day “fee” on car rentals. (Florida already has an existing charge in this amount, so the new total tax would be $4 per day).

A rental car tax is a particularly inappropriate revenue source for commuter rail. Because Tri-Rail is designed to move commuters from suburban areas to business districts, with peak service at rush hour, it not very useful to the leisure travelers who dominate South Florida’s car rental market. It is clear that car renters are being targeted not because they are beneficiaries of Tri-Rail, but because they are a tax source that lacks representation in the Florida legislature.

When possible, government programs should be funded in accordance with the “benefit principle,” where the beneficiaries of government services are taxed to fund those services. The use of gasoline excise taxes to fund road construction and maintenance is an example of the benefit principle.

What would that imply about how Tri-Rail should be funded? Obviously, Tri-Rail riders benefit from the system, and the South Florida Regional Transportation Authority should consider whether fares are currently high enough. Transit also has indirect beneficiaries, including road users (who face reduced traffic, especially at rush hour, as others choose transit) and property owners (who see value increases because of Tri-Rail service). As such, higher gasoline excise or property taxes in the Tri-Rail service area would be appropriate places to look for new revenue.

Finally, if these revenue sources provide insufficient funding, governments should look to broad-based taxes that spread the burden in a fair manner in accordance with the ability to pay taxes. Since Florida has no income tax, one example of this would be dedicating some additional sales tax revenues to Tri-Rail.

Besides the appropriateness of the revenue source, there are at least two other problems with the rental car “fee” proposal. One is that proponents are calling the charge a “fee,” which it is not: because the proceeds do not go to a service specifically for car renters, the charge is a tax. (In Florida, fee/tax confusion goes all the way to the top.) Secondly, because the tax is levied on a per-day basis, it discriminates against Zipcar and other providers of car rental by the hour; even with the current $2 charge, over 25% of the price of a one-hour Miami Zipcar rental goes to taxes. With the new “fee”, that would rise to more than 40%.

The proposal could be improved by admitting the charge is a tax and shifting to an ad valorem basis, where the tax is charged as a percentage of rental price. But because the car rental tax is entirely wrongheaded as a Tri-Rail funding source, proponents would be well advised to scrap the idea and look to higher fares or increased gasoline or property taxes if more funding is needed.