The Navigator: Car rental agencies and cities get ready to go head-to-head over taxes again

By Christopher Elliott
Special to The Washington Post
Friday, February 4, 2011; 11:09 AM

Ready for Round 2 of car rental companies vs. cities?

You might recall the opening salvo two years ago, when then-Rep. Rick Boucher (D-Va.) introduced the End Discriminatory State Taxes for Automobile Renters Act of 2009. The law, backed by car rental companies, would have limited the excise taxes that a municipality could levy on the agencies' vehicles. Cities fought the measure, saying that it would limit their ability to raise money and that it represented an unwanted federal intrusion.

What's that? You don't remember any of it?

Well, here's something you probably can remember: your last car rental bill.

Drew Tipton does. His 18-hour Avis rental at Chicago O'Hare cost $61. Then Avis added an 11 percent concession recovery, an $8-per-day mileage surcharge, an $8-a-day customer facility charge, a license fee of $1.25 per day and a 20 percent tax, and - ka-ching! - suddenly his rental fee had ballooned, to $97.

I remember my last rental, two weeks from Thrifty in San Francisco last month. The base rate was $693, and I paid $300 for optional insurance. But once the company was done with me, I'd paid a total of $1,276, including a $24 tourism surcharge, an airport concession recovery fee of $114 and $85 in taxes.

Yes, the extras are out of control. It would take me another column just to explain them all and to draw the fine line between fees, sales taxes and excise taxes. Suffice it to say that the proposed bill would cap many of the taxes, preventing local governments from asking car rental customers to pay what the bill's supporters say is more than their fair share. "The battle is only intensifying as states fight to cover budget shortfalls and look to expand tax bases," says Robert Barton, president of the American Car Rental Association, a trade organization.

Car rental companies are making a new push to get Congress to pass the bill early this year. In their view, discriminatory taxes on rentals have gone from bad to worse since the bill was introduced. That includes a proposal by Charleston, S.C., to tax cars in an effort to lure Southwest Airlines to its airport (an offer the airline turned down) and a proposed new rental tax in Tucson to cover the costs of luring a baseball franchise to the area for spring training.

"Until recently, the auto rental industry has been reactive in fighting these excise taxes," explains Chris Brown, executive editor of Auto Rental News, a trade publication. "But this bill serves notice on a national level that the auto rental industry is no longer a politically expedient target to raise money for projects that have nothing to do with car rental, such as financing new sports stadiums."

That's not how cities see it. Lars Etzkorn, a program director at the National League of Cities, says local taxes on rental cars pay for a variety of services that visitors use, including roads, convention centers and libraries. He also dismisses arguments that car rental excise taxes - despite being touted as "tourist taxes" to local voters - are discriminatory, noting that most car hires are local rentals, which means that the customers live in the community and benefit from all services, including sports stadiums.

Although in principle the National League of Cities supports equitable, fair and transparent taxation, it opposes the law. "The decisions about taxation should be made in the community," says Etzkorn, "not in Washington."

Sally Greenberg, executive director of the National Consumers League, told a congressional hearing last year that drivers don't object to paying taxes that fund hospitals, roads or libraries. "But when rental car customers are asked to pay for stadiums or arts centers, and the taxes imposed seem to have no limit, it's time to say enough is enough," she said.

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