Car Rental Taxes, Fees Continue To Increase At Airports

With states and municipalities facing budget shortfalls and airports across the country strapped for cash, car rentals continue to be targeted for additional taxes and fees. While car rental companies successfully have lobbied against proposed taxes—or voters simply failed to support the legislation—in more than a dozen municipalities in the past year, sales tax increases, higher airport concession fees and new visitor taxes are the trend in many localities.

The newest fees are a tripling of the vehicle licensee fee, which is passed onto consumers in California as of Oct. 1; a 10 percent car rental tax in Alaska, which goes into effect Jan. 1; and a $2 a day car rental tax in New Jersey, which was implemented last year. In addition, a 2 percent car rental tax is being considered in Sparks County, Nev., which includes Reno, and Washoe County (Las Vegas), with the former funding a minor league baseball stadium and the latter a performing arts center and culinary school.

Other types of increases are apparent in comparing data listing all the fees on car rentals at the top 100 airport markets compiled by Abrams Consulting Group—one released this July, the other one year ago. According to the data, the sales tax has increased in Indianapolis, Kansas City, Miami, Nashville, New York, Orlando and Philadelphia. The Nashville increase is due to a 1 percent highway tax implemented in Tennessee on car rentals.

Airport concession fees, which car rental companies pass on to consumers, have increased in Albuquerque, Detroit and Indianapolis, and new airport fees have been introduced in Fort Lauderdale, Fort Myers (each $1 per day), Houston ($3.50 per day), Jacksonville (which actually is a $2.05 per day visitor tax) and Nashville ($3.55 per day). Collectively, these taxes and surcharges can boost the cost of a car rental by 30 percent or more of the rate.

At Boston Logan airport, for example, renters pay 18.6 percent in taxes, plus a $10 per rental fee; at DFW, they pay a 26.11 percent tax, plus a $5 to $7 per day fee, which is a combination of the vehicle license fee and airport surcharge; at Phoenix, they pay 29.46 percent in tax, plus a $3.25 per day airport fee; in San Francisco, they pay 8.25 percent in tax, plus a $12 per rental airport transportation fee.

"The problem is getting worse," said Kevin Iwamoto, past president of the National Business Travel Association and global airline and car rental supply manager at Hewlett-Packard. "A lot of local governments look at car rental and airports as a great way to get extra revenues." One difficulty, he said, is that unlike the hotel industry there are "just a handful" of major car rental suppliers to fight the onslaught of new fees. "It's very expensive to have a full-time lobbyist in Washington, D.C."

However, car rental firm representatives said their general counsels had been very active in fighting the increases. Hertz Corp. spokesperson Richard Broome said the industry successfully had defeated car rental surcharges proposed in Alabama; Evansville County, Ill.; Florida; Hawaii; Maryland; Minnesota; Ohio; Oregon; South Carolina; and Wichita, Kan.

While an argument could be made for increased sales tax as a result of the fiscal crisis in many states, "special purpose taxes," such as for a new stadium or convention and visitors center, "are particularly objectionable," Hertz's Broome said.

Iwamoto said NBTA is doing its part: "We're constantly putting the issue in front of the U.S. Department of Transportation and legislators," he said, noting that the association had made a couple of contributions to support legislation addressing the issue. In the meantime, corporate travelers might want to consider "an alternative place to pick up the car, such as a downtown location or hotel" rather than the airport.

DFW also has implemented a new drop-off fee on chauffeured car services. Before, the car services companies paid $2 for every vehicle drop off at the curb taking less than eight minutes and nothing for drop offs taking from eight minutes to an hour, but now they pay $1 after eight minutes.

Ray Mundy, executive director at the Airport Ground Transportation Association in St. Louis, Mo., said parking fees at airports had increased an average of 10 percent in the past year. Airport authorities don't have their hands tied when it comes to increasing parking fees, and car rental leases generally come up annually, making that sector also vulnerable to new fees. In contrast, concession agreements may be long term, and the authorities are having difficulty increasing landing fees because of the dire economic straits of the airlines.

Mundy and Jon LeSage, vice president and director of research at Long Beach, Calif.-based Abrams Travel Data Services, noted that many airports were having trouble financing new remote car rental facilities they had planned because the amount of bonds they had to raise were based on overly optimistic traffic projections, which failed to materialize due to the prolonged economic downturn.

For corporate travel managers, "the issue is to look at the total cost of the rental," rather than just the rate, LeSage said. Indeed, J.D. Power and Associates, in its 2003 Domestic Airport Rental Car Customer Satisfaction Study, released in June, noted that rental car rates and value have become the most influential factor affecting customer satisfaction, for the first time in eight years. "Since 9/11, we've seen dramatic changes in prices and fees," stated Mike Taylor, J.D. Power senior director of travel services, "and these changes have caught the attention of renters."