Car Sharing: To Tax or Not to Tax?

Excise taxes. Auto rental companies loathe the additional fee their customers are forced to incur; nevertheless everyone’s on the same playing field, dealing with the same taxes…right?

As the issue heats up again, the answer may not be so clear.

Car sharing companies across North America are continuing to argue that their service is inherently different from traditional car rental in such that it’s good for the environment and allows people to live in the city without a car.

Too, they attest that taxing their customers is only taxing local residents, rather than out-of-town renters, the revenue mechanism that has been the impetus for these types of taxes in the first place.

Flexcar to Pay Tax–For Now

Following a similar situation last year in Chicago, recently the Washington State Department of Revenue announced that Seattle-based car share company Flexcar would be required to pay a 9.7 percent car rental tax.

The Department of Revenue said Flexcar’s car sharing service is like a traditional rental car and will be taxed as such.

Shortly after the initial announcement was made, Washington Gov. Chris Gregoire stated in a letter to the department that “our tax code should act as an incentive, not a hindrance, to innovation.” She said she wants to “ensure access for consumers” and declared Flexcar offered “creative” solutions to transportation challenges.

Because of that, the state agreed to defer the tax for the month of October. Yet, as of Nov. 1 Flexcar members are required to pay the tax.

In a written statement to the media, Flexcar said it is hopeful everyone will agree that car sharing is a service that should be encouraged and whose members should not be burdened by additional taxes.

The statement continued, “National studies have shown that car sharing members sell or avoid buying cars, reduce vehicle miles traveled and increase transit ridership. In doing so, the impact is felt community-wide in terms of reduced carbon emissions and reduced congestion.”

When arguing that their services are indeed “greening society,” many car sharing companies point to such independent research as Reducing Greenhouse Emissions and Fuel Consumption, Sustainable Approaches for Surface Transportation (March 2007) by Susan Shaheen and Timothy Lipman; and Carsharing in North America, Market Growth, Current Developments, and Future Potential (July 2005) by Susan Shaheen, Adam Cohen, and Darius Roberts.

Talks with all the stakeholders–including traditional car rental companies–are continuing in Washington, but according to Mike Gowrylow, spokesperson for the Washington Department of Revenue, at this point an administrative solution in not in sight.

“It’s looking increasingly like it will have to be resolved by the Legislature,” Gowrylow says. “But, the challenge will be enacting legislation that exempts car sharing organizations without opening up the door to traditional car rental companies doing the same thing.”

CONTINUED:  Car Sharing: To Tax or Not to Tax?
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