By Gary Stoller, USA TODAY
Anyone renting a car in Maine would be paying the state 12.5% of their bill in excise taxes starting last month if the legislature there had its way.
But residents blocked the state's new tax-reform law — which included a tax increase from 10% to 12.5% on rental car bills — by signing petitions in opposition. If the signatures on the petitions turn out to be valid, the increase will be put to a vote in June, says Sara Lewis, a Maine taxation official.
The action in Maine represents something of a victory for business travelers, corporate travel departments and rental-car companies who are increasingly upset over what's been an explosion in taxes imposed on renting a car.
Airline fees "are bad, but the worst are car-rental taxes," says frequent business traveler Tony Harrison, who has rented cars 75 days so far this year and paid upwards of 20% of his bill in taxes in some cities.
Harrison, president of a company in Edmond, Okla. that trains public-safety officials, says the city, state and airport tax levies on what he pays to rent a car have gotten so bad that he factors them into deciding which airport he'll fly into.
The taxes are tough to avoid. There were 114 separate state and local excise taxes for renting or leasing a car in 43 states and the District of Columbia as of the end of last year. In 1990, there were only 14 of them, according to the Coalition Against Discriminatory Car Rental Excise Taxes, a group formed to combat the proliferation of the taxes and which tracks them.
Taxes a way to close budget gaps
The taxes can cost a Fortune 100 company $5 million to $10 million a year, figures Michael McCormick, executive director of the National Business Travel Association, which represents about 4,000 corporate travel managers and suppliers.
Rental-car companies aren't happy with them either. They don't want to be tax collectors. Nor do they want to hear disgruntled renters complain about the charges on their bills. So three years ago, eight rental-car brands and the National Business Travel Association formed the coalition to publicize the taxes, educate consumers about them and lobby against them.
The taxes are proliferating, however, as states and localities look for revenue to balance their budgets in recessionary times.
•New Jersey has passed a tax-reform law that allows certain municipalities to impose a 5% excise tax on car-rental transactions, the coalition says. Renters in New Jersey already pay a $5-per-day state tax and a sales tax.
•Wisconsin has given counties the authority to
impose an $18 tax on each car-rental transaction to help fund a mass-transit project. Such a tax could increase the total tax rate to more than 70% on a $30 daily car rental in Milwaukee, Racine and Kenosha counties, the coalition says.
•Legislation is pending in Michigan that would add a $2.50 excise tax to each car-rental transaction, the coalition says.
•Florida lawmakers are considering calling a special legislative session in December and doubling a $2 car-rental tax to help fund rail projects, says Jay Ryan, vice president of Enterprise Holdings, the owner of Enterprise, National and Alamo rental-car companies.
Todd Haggerty, a policy associate for the National Conference of State Legislatures, says it's understandable why states and municipalities increasingly tax car renters and others.
The states have been hit hard by the recession and collectively had a budget gap of $117 million in fiscal year 2009, says Haggerty, whose group monitors legislative activity in all 50 states. "It's left states in a position to cut programs and services or find new areas of revenue, or a mixture of both."
Many car-rental taxes are introduced to fund a specific project — such as building a stadium or public transportation system — but then are shifted for another purpose when the project is complete, says McCormick of the National Business Travel Association.
"Further," he says, "many of the tax rates are increased over time, creating a greater burden on both local and visiting car-rental customers."
Often sold as 'out-of-towners' tax
In Maine and other states, legislators who back imposing or increasing taxes on renting cars often argue that they're paid by travelers from outside the state.
"Rental-car taxes are sold to voters as taxes on out-of-towners, and that's not true," says Laura Bryant, a spokeswoman for the coalition of rental-car companies. "More than half of all car-rental revenues come from local consumers and companies."
Tax increases add to the costs paid by many local residents who rent cars while their own vehicles are being repaired, says Robert Passmore, senior director for the Property Casualty Insurers Association of America, which represents more than 1,000 insurance companies.
Those increases also drive up the premiums that insurance companies charge, he says.
The rental-car business is one of many affected by tax increases designed to narrow budget gaps, says Haggerty, of the state legislative conference.
For many lawmakers in some states, he says, it's more palatable politically to propose a tax on rental cars, which can be sold as one paid by visitors, than it is to propose an income tax or other broad tax affecting all state residents.