Discriminatory Taxes
A well-designed tax system doesn't single out customers of just one industry.
Budget deficits. A performing arts center. A police and fire station. Highway construction projects. Even a sewage treatment plant.
What do all of these projects have in common? All have been, or are proposed to be, financed by excise taxes on rental cars, which represent less than 1% of all registered vehicles nationwide.
Since 1976, more than 95 car rental excise taxes have been enacted, with dozens more under discussion throughout the country. Car renters specifically have been asked to cover the costs of 18 stadium and sports venue projects, with at least 17 more under consideration.
Even more telling, car rental excise taxes have cost consumers and businesses well over $5.9 billion since 1990. Yet, there is no special benefit for car rental customers, nor is there a direct connection between renting a car and using these public facilities or programs.
Many legislators across the country are forcing car rental customers to fund an array of unrelated projects and to carry a disproportionate share of the financing burden.
Such arbitrary taxation is blatantly unfair not only to out-of-towners, but also to local consumers and businesses. It also violates what economists call the "benefit principle," which holds that tax burdens should be assigned according to the benefits that taxpayers receive.
As a result, federal legislation is needed to prohibit discriminatory car rental excise taxes - and to protect the rights of consumers and businesses, whether they rent cars out of state or in their own hometown.
Bad Tax Policy
Most car rental excise taxes fail to satisfy basic, widely agreed-upon principles of sound public finance.
According to the Tax Foundation, a non-partisan educational organization, car rental excise taxes represent a predatory approach to tax policy and are impossible to defend.
For example:
- Unreliable: By targeting such a narrow base of consumers and businesses, a car rental tax revenue stream is more vulnerable to economic cycles and, thus, is inherently less predictable.
- Regressive: Car rental excise taxes hit hardest those who can least afford it.
- Retaliatory: Jurisdictions are now exploiting a "me too" strategy, pitting cities and counties against one another. For instance, car rental excise taxes recently became a pawn in a head-to-head competition between San Antonio and Miami- Dade County involving the Florida Marlins baseball franchise.
In addition, nationally recognized tax economists William Gale and Kim Rueben have conducted a detailed assessment of car rental taxes in Kansas City, Mo.
Their study documents the unintended consequences of Kansas City's whopping $4 per-day car rental excise tax: customers are renting fewer cars and the state of Missouri is losing sales tax revenue as some renters take their business across the state line into Kansas.
Clearly, stacked against well-established tax policy tenets - including those laid out by the National Council of State Legislatures - car rental excise taxes receive a failing grade.
Interstate Commerce
The United States Constitution specifically grants Congress the power to regulate commercial activity among the 50 states. This grant of authority has been interpreted to mean that state laws may not discriminate against interstate commerce. Individual states - which collectively comprise one economic union - may not create tax policies that discriminate against out-of-state consumers and businesses involved in interstate commercial activities.
Historically, Congress has prohibited unfair practices by state and local governments that unreasonably burden or discriminate against interstate commerce and transportation. Examples include the Airport and Airways Improvement Act (1978), "4 R" Act (1976), Motor Carrier Act (1980), and Bus Regulatory Reform Act (1982).
Meanwhile, cash-strapped municipal, county, and state governments continue to look hard for revenue sources to fund worthwhile civic projects.
However, when state and local lawmakers - even under the guise of "states' rights" - enact car rental excise taxes as a politically expedient means of shifting the tax burden to out-of-state renters, they interfere with the well-established principles of interstate commerce.
A prohibition on the imposition of discriminatory car rental excise taxes is the logical next step for congressional action designed to protect interstate commerce.