Why Do We Tax Car-Sharing Like It's Liquor or Cigarettes?

Taxes on quick car-share trips run as high as 60 percent.

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Rental-car taxes are a boon for big cities. They extract hefty contributions to local coffers from the constituents least likely to complain about it: out-of-towners. And they come in a variety of ingenious forms, as regular taxes, but also airport surcharges, one-time transaction fees and even micro-payments to help pay for pricey amenities like convention centers and sports stadiums.

You probably have no problem with this. Heck, your city needs the money. All across the country, though, rental-car taxes are also levied on a more local form of transportation that did not exist when most of these fee schemes were invented. Car-sharing members invariably have to pay these taxes, too, with the perverse result that your one-hour trip to the grocery store in Hoboken, New Jersey, will come with as much as a 62 percent tax.

“In places like New York, where it’s 19 percent or more, it’s sin-tax levels,” says Alice Bieszczat, a researcher at the Chaddick Institute for Metropolitan Development at DePaul University in Chicago. “We’re taxing car-sharing like it’s liquor or cigarettes, like it’s a carcinogen. And it’s quite the opposite. It’s a service or product that reduces carcinogens in the air.”

Bieszczat and colleague Joe Schwieterman have surveyed car-sharing taxes in 82 cities[PDF] across the country, documenting that you’ll pay more in taxes on your neighborhood car-share membership than you will on any other form of consumer transportation – including buses, trains, private cars and even airfare. In Miami, New York, Philadelphia, Pittsburgh, Seattle, and Tampa, one-hour car-sharing reservations are taxed at more than twice the local sales tax rate. One-hour trips are among the most economically inefficient, since you may wind up paying the same one-time transaction fee that you would on an entire week’s car rental. In New Jersey, that’s a $5 fee every time you take out a car. Pennsylvania charges a $2 “security fee” for each reservation. Colorado, Connecticut, Florida, and New Mexico each have $2 per-transaction surcharges as well.

Such rental-car taxes probably won’t discourage tourists from traveling to town. By the time they get to the Enterprise desk at the airport, they’ve already committed to shelling out hundreds of dollars for airfare, hotels, and dining. A $5 transaction fee on a rented minivan isn’t going to change anyone's behavior. But that same fee could quite plausibly deter people who are just looking to run to the neighborhood store, when the closest bus route won’t take them there.

“It just doesn’t make sense for every city-dweller to own their own car in these transit-friendly environments we’re trying to create,” Schwieterman says. “And a 20 percent tax on that lifestyle is so counterproductive.”

He and Bieszczat have compiled this chart of the one-hour tax rates on car-sharing reservations in the 25 largest cities that have such a service:

And here is a map of the 11 worst offenders in the country:

A few cities and states have tried to carve out exemptions for car-sharing. Portland, in Multnomah County, Oregon, has had an exemption since 1999 on its 17 percent vehicle rental tax. Chicago has eliminated the 8 percent Personal Property Lease Transaction Tax on car-sharing reservations of less than 24 hours. Washington State had one, too, before changing its mind in 2007. Such exemptions, though, require that governments draw a clear distinction between car-sharing and car renting. And traditional car-rental companies aren’t eager to see that happen. They’ve already begun moving into the car-sharing space with services like Hertz on Demand. And they even have a trade group – the Coalition Against Discriminatory Car Rental Taxes – lobbying against special treatment for car-sharing services.

There remains, however, one significant difference between the two industries. And once cities have begun to recover from the recession – and can afford to roll back some taxes – they’d be smart to recognize this. Research has repeatedly shown that car-sharing can reduce the total number of cars on the road and associated emissions, and encourage people to walk and bike more. In many cities, car-sharing even functions as a kind of extension of the public transit system.

“There are many benefits that accrue to not only car-sharing consumers, but to the neighborhood and community at large,” Bieszczat says. And rental-car companies aren’t particularly trying to fill that role.

Top image: Car2Go vehicles in Austin, Texas (Alfie Photography / Shutterstock.com)

About the Author

  • Emily Badger is a former staff writer at CityLab. Her work has previously appeared in Pacific StandardGOODThe Christian Science Monitor, and The New York Times. She lives in the Washington, D.C. area.