NCPA - National Center for Policy Analysis

TRAVELERS HIT WITH SLEW OF NEW TAXES ON RENTAL CARS

November 10, 2005

In cities across the country, people who rent cars are getting hit with a host of new taxes, say observers.

  • As of this August, there were 44 rental-car tax proposals pending or approved by local governments, up from just three on the books at the beginning of 2004, according to Enterprise Rent-A-Car Co.
  • At Chicago's Midway Airport, for example, a new charge of $3.75 per day went into effect on Sept. 1.

Overall, the taxes range from 0.8 percent of the bill to $10 per rental. That might not sound like much, but an extra $10 per day charge can almost double the cost of renting an economy car in some cases, because base prices are near historic lows and some companies have been running aggressive weekend specials.

  • The flurry of taxation is partly due to the fact that the rental-car industry's trade association was dissolved in June, leaving it with no effective lobby.
  • The industry is notoriously fractious, making it harder for companies to jointly combat tax increases.
  • Also, rental cars are considered ripe for taxation because more than half of customers rent at the airport, so lawmakers assume they don't live in the town and can't vote down the proposed fee.

The fees are being levied to pay for things like stadiums, museums -- and alternatives to renting a car, such as monorail systems and rail lines. State and local lawmakers, many of whom operate under balanced-budget mandates, got hit hard by the recent economic downturn and have become more creative about looking outside their constituencies for funding.

Source: Avery Johnson, "Travelers Hit With Slew Of New Taxes on Rental Cars: Added Fees Can Double The Price of an Economy Car; Ways to Avoid Extra Charges," Wall Street Journal, November 9, 2005.

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