Colorado Senate Bill 108 proposes to fund critically important infrastructure projects through a discriminatory car rental excise tax. And while transportation projects like these certainly deserve long-term, sustainable funding, Colorado taxpayers deserve to know they could be taken for a ride with this $2/day excise tax on all car rentals.

For example, our state constitution protects citizens from unfair taxation through the power of the vote. Efforts to characterize the proposed car rental excise tax as a “fee” appear to directly circumvent these supposed protections.

Furthermore, Senate Bill 108 would make Colorado one of the more expensive places to rent a car anywhere in the country, for residents as well as out-of-towners. In addition to paying the $2/day car rental excise tax, Colorado residents would be asked to pay additional registration costs on their own vehicles – in other words, “double dipping” on residents.

Car rental excise taxes are clearly unfair and discriminatory, singling out a group of consumers and imposing an undue financial burden on a small segment of the population. History teaches us that discriminatory taxes are never popular and some – the Boston Tea Party comes to mind – less so than others. But history also demonstrates that the design by which governments tax their citizens is just as important as the need that the tax was created to meet.

No doubt this explains why, in 2004, the Denver City Council's Economic Development Committee soundly rejected a car rental excise tax, because, as the Denver Post noted, "killing the goose that lays the golden egg is never sound fiscal policy."

According to noted economists and tax policy experts William Gale of the Brookings Institution and Kim Rueben of the Urban Institute, a standard model of good tax policy is to create a broad tax base to spread the burden to all who benefit from the project. However, states stray significantly from this concept when levying excise taxes on the car-renting public. In 2006, Gale and Rueben completed a study commissioned by a member of our industry coalition. In the study, "Taken for a Ride: The Economic Effects of Rental Car Excise Taxes," they found that piling taxes onto car rental customers is both inefficient – because it can distort choices about modes of transportation – and inequitable, because it is hard to fathom why users of one particular industry should bear a disproportionate cost of financing projects that are deemed to have broad community benefits. Using car rental data from Kansas City, Mo., Gale and Rueben analyzed and tracked rental car transactions in the market between January 2002 and June 2005. The findings indicated:

  • A 9 percent reduction in rental car customers at locations where the tax was in effect.
  • A 69 percent to 86 percent reduction in the number of days people rented cars from locations where the tax was in effect.
  • A decrease in Missouri's state sales tax receipts due to higher rental costs driving customers across the state border into Kansas.

As Gale and Rueben wrote: "Since its implementation, the tax has generated significant unintended consequences – given its negative impact on consumers, on business activity, and even on the larger state economy."

While it would be far easier to simply attack rental car excise taxes without offering alternative solutions, the car rental industry would rather play a constructive role and work with government leaders to provide reasonable options. As Will Rogers once said, "People want just taxes more than they want lower taxes."

People also intuitively object to double-standards. For example, it’s no secret that the road construction industry has played a significant role in shaping this legislation. This bill essentially creates a revenue transfer from the car rental industry to the road construction industry. Do state legislators really want to pick winners and losers in these tough economic times by targeting customers of one industry to prop up another?

The Coalition Against Discriminatory Car Rental Excise Taxes recognizes local government authority as a cornerstone of democracy. However as states carry out their critical role in protecting consumer and citizen rights, it is important that they extend that protection to all constituents, including car rental customers.

The author, Sean Busking, is Executive Director of the American Car Rental Association (ACRA). He submits this commentary on behalf of Coalition Against Discriminatory Car Rental Excise Taxes, of which ACRA is a member.