More Cities, States Seek To Add Car Rental Taxes

A new bill in Texas that just passed the House and will soon be voted on in the Senate is the latest in a series of initiatives that call for new taxes on car rentals and hotel rooms as a way of paying for new or improved sports facilities.

In the face of rising car rental rates and an ever-increasing number of city surcharges and other extra fees, the new taxes are an unwelcome development for corporate travel managers. And they are infuriating the car rental industry, which can do nothing but pass the tax on to their customers.

Since 1989, when Florida became the first state to introduce car rental surcharges with a 50-cents-a-day fee on all rentals, car rental taxes have increased and proliferated. To cite a few examples, Arizona enacted new legislation several years ago that has resulted in a $1.50 surcharge on rentals in Phoenix and $3.50 in Tucson; both fees fund facilities for local baseball teams. Last year, legislators in Georgia passed a law allowing local communities to implement car rental taxes. Renters in Atlanta, Marietta and Savannah now pay a 3 percent surcharge, in addition to the 8 percent sales tax. In Marietta, the taxes are funneled into the general city funds, while in the other two cities they are pegged for new sports and convention facilities.

Lawmakers in at least two localities that already have car rental surcharges are considering adding new ones. In Washington, D.C., a proposal for a new convention center includes an option to implement an additional one percent tax on car rentals, along with a 2.5 percent increase in the hotel tax, which is already 11 percent. Renters currently pay $1.50 per day in tax, in addition to the 8 percent sales tax.

In Boston, a just-completed report on a new convention center calls for an as-yet-undetermined surcharge on car rentals at Logan Airport, in addition to the current fee of 30 cents per rental and 5 percent sales tax. The report, suggestions from which are expected to be put into legislation this June, also suggests a $2-a-night tax on hotel rooms.

And in Indiana, a bill has been introduced enabling local communities to pass a car rental tax ranging between 2 and 5 percent. If passed, the tax would help pay for a new basketball facility.

But it is the Texas bill, introduced by Rep. Kim Brimer, that is causing the most waves. One reason is the astounding amount of the proposed tax: It would allow communities to introduce car rental taxes of up to 10 percent, essentially doubling the current 10 percent tax. (The bill also calls for a 5 percent tax on hotels.) In the event that the Brimer bill fails to become law, legislators in five cities--Houston, San Antonio, El Paso, Dallas and McAllen--have introduced proposals of their own that would implement new car rental and/or hotel occupancy taxes as an alternative way to pay for new sports facilities.

Car rental executives argue that their industry is being unfairly targeted by legislators who don't want to alienate their constituencies by taking the politically unpopular step of raising sales or property taxes. A study commissioned by Texans for Fair Play, a group lobbying against the Texas bill, revealed that only 3.2 percent of ticketholders at one sports arena arrived in a rental car, and less than half of that number were from out of state.

Besides the fairness issue, car rental executives also dispute the purported advantages to the local economy of new sports facilities. "Studies show that little if any economic benefit to the community comes from new sports stadiums," said John Lee, senior corporate attorney at Budget Rent a Car and chairman of the legal and legislative committee of the American Car Rental Association, an industry group based in Washington, D.C. "The only people who profit are players or owners."

Robert Baade, a professor of economics at Illinois' Lake Forest College who has studied the issue for a number of years, said the benefits of new sports stadiums are "essentially nil. Players and owners often don't live in the area where they play, and the time spent on professional sporting events means there is less spending on other leisurely activities in the community."

There are other, more palatable solutions, Lee said. He pointed to Milwaukee, which enacted a stadium tax of one-tenth of one percent last January on the local sales tax to pay for a new $250 million facility. "We did not oppose it," he said. And in San Francisco and Washington, D.C.