Since the first excise tax was imposed on car rental in Oregon in 1976, 84 more excise taxes have been enacted and 45 are in discussion in 29 states. According to figures collected by Enterprise Rent-A-Car, over $3 billion in car rental excise taxes has been collected since 1993. What tools are at the industry’s disposal to counteract further legislation, and who is stepping up to the plate? What can you do about it?
Why Car Rental Excise Taxes Are Bad Policy
As rental car taxes have gained in popularity, tax experts and economists are increasingly showing in their research the pitfalls of targeting the car rental industry as a source of public funding.
The most widely publicized study on this issue in recent months is "Taken For a Ride: Economic Effects of Car Rental Excise Taxes," a paper published by economists William Gale of The Brookings Institution and Kim Rueben of The Urban Institute.
Prepared as a private consulting project for Enterprise Rent-A-Car in partnership with the National Business Travel Association (NBTA), the study concludes that car rental taxes are inconsistent with basic principles of good taxation.
Gale and Rueben draw connections between the recent slump in the national economy and state and local governments looking to non-traditional sources for revenue, particularly for expensive civic projects that could bring notoriety to their region, like sports stadiums or performing arts centers.
The study focuses on Kansas City, where a $4-a-day tax was imposed on rentals on the Missouri side of the border, but not in Kansas.
As a result, local demand for rentals was reduced between 41 and 50 percent at taxed branches, and the number of rental days for local customers was reduced between 69 and 86 percent. Overall rental at taxed branches decreased by 9 percent relative to untaxed branches.
"The study showed that people will vote with their pocketbooks and will take business elsewhere, and I think that’s an important lesson to local politicians who think they can raise tons of revenue," says Bill Connors, executive director of the NBTA. "They’re going to drive people out of their market."