A Brief History of Car Rental Excise Taxes

Sometimes a headline and a 200-word story can’t convey the importance of an issue. In that vein, “FAA Reauthorization Includes Car Rental Excise Tax Amendment” may be the understatement of the year.

We’re talking about car rental excise taxes. Not the most glamorous of subjects, but billions of dollars are at stake — revenue to fund projects completely unrelated to car rental that would provide no benefit to car rental customers, such as football stadiums, minor league baseball parks, and civic projects such as art centers and even a culinary academy.

Let’s get this out of the way: The car rental industry has never been opposed to paying its fair share of taxes, nor is it opposed to taxation on constituents for whom the taxes benefit, car rental included.

Targeting a single industry to account for significant portions of big budget public projects is not smart tax policy, but political expediency triumphed many times. It began in earnest in the early '90s, as state and local legislators looked to raise revenues from “out-of-towners” coming in to rent cars.

In 2006, the American Car Rental Association (ACRA) was reorganized with a primary focus to educate lawmakers on the issues surrounding this bad tax policy.

ACRA demonstrated that half of the overall car rental revenue pie comes from airport transactions while the other half comes from local, or “neighborhood” rentals — their constituents. These constituents earning less than $50,000 annually are disproportionally affected by these taxes, research showed.

The fight was just beginning. There were some local wins and some losses for the industry over the years.

Sometimes, lawmakers were able to see the consequences of bad tax policy themselves: In Revere, Mass., an excise tax was levied on car rental tax to pay for the town’s public safety facility. When Revere’s Thrifty location moved into the new rental facility at Boston’s Logan Airport, it shifted $750,000 per year from the city’s coffers.

In addition to state and county education, ACRA championed federal legislation, arguing that car rental excise taxes place an undue burden on interstate commerce, which Congress has the sole right to regulate.

Over the last eight years, standalone bills in both the House and Senate gained bi-partisan support. During this time ACRA began reaching lawmakers through coordinated face-to-face meetings on Capitol Hill.

A more recent avenue was an amendment included in the Federal Aviation Administration (FAA) reauthorization, which only permits discriminatory excise taxes on airport car rental transactions if the revenue would be used to reinvest in the airport.

The FAA reauthorization, including the excise tax amendment, was signed into law earlier this month.

In any measure viewed as preventive, it’s not appropriate to declare victory at the outset. The legislation, of course, does not address non-airport excise taxes. Yet this new law should make lawmakers think twice about funding unrelated projects through car rental taxation when airport tax revenue — half of the car rental revenue stream — can’t be touched.

The passage of this bill embodies years of behind-the-scenes work by ACRA on the car rental excise tax issue. Hold your applause, the fight is not over. But this is a tangible nationwide step in the right direction.