Can Congress protect you from car-rental taxes?
— -- For travelers, the toughest tariffs are those that are levied without your say, in districts far from where you live and vote. And when it comes to paying the taxman, renting a car can be the costliest part of your trip.
In 2005, I addressed this topic in the column, " What's a Rental Car's Bottom-Line Price?" and detailed why many of these charges are levied, often to fund projects that have nothing to do with travel or transportation. The bottom line about bottom-line pricing, however, is that it's mandatory and there's little you can do about it.
At least, that was the conventional wisdom. Now there's reason for optimism, thanks to a bill introduced in the House of Representatives dubbed the "End Discriminatory State Taxes for Automobile Renters Act of 2007." H.R. 2453 was introduced by Rep. Rick Boucher (D-Va.) and Rep. Chris Cannon (R-Utah) on May 23, with six co-sponsors (an even balance of three Democrats and Republicans apiece). It was referred to the Subcommittee on Commercial and Administrative Law on June 25; whether it will advance out of committee is unclear, but if you feel strongly about the issue you should contact your representative.
Support for this bill came from the aptly-named Coalition Against Discriminatory Car Rental Excise Taxes (it's unlikely we'll be hearing from the Coalition FOR Discriminatory Car Rental Excise Taxes). To be sure, the car rental industry has a vested interest here, and the eight largest firms—Alamo, Avis, Budget, Dollar, Enterprise, Hertz, National, and Thrifty—are all onboard, lending money and support to the Coalition in an effort to prohibit "future discriminatory car rental excise taxes." The key words here are "future," because the bill would grandfather in existing taxes, and "discriminatory," because it would not ban "standard" state or local taxes, vehicle license fees, or "customary" airport fees.
However, the Coalition has generated support not only from industry groups such as the American Car Rental Association (ACRA), the American Society of Travel Agents (ASTA), and the National Business Travel Association (NBTA), but also from Americans for Tax Reform and the National Consumers League (NCL). A summation of the arguments in favor of the bill can be found at www.nbta.org/TravelTaxes. Linda Golodner, president and CEO of NCL, says, "These taxes, which cost consumers hundreds of millions of dollars annually, are discriminatory and regressive. They also impose a burden on consumers traveling in the nation's interstate transportation system."
They keep growing and growing...
The Coalition says car rental excise taxes have more than doubled since 1996, and there are currently 99 in existence, spread among 42 states and the District of Columbia. The sum tab for renters has reached at least $6 billion so far. It's worth noting that while the travel industry is notorious for imposing surcharges, other sectors—including hotels and even airlines—have not been hit as heavily as the car rental business on a percentage basis.
Andrew Chamberlain of the Tax Foundation posted a blog entry entitled " The Case Against Special Rental Car Excise Taxes." He cites the numerous performing arts centers, sports stadiums, and public works projects (such as a sewage treatment plant) paid for by car rental customers. And then there's the culinary institute in Las Vegas and the American Airlines Center in Dallas, home of the NBA's Mavericks.
Chamberlain says, "From an economist's perspective, these special excise taxes on the rental car industry are hard to defend. Most of them fail to satisfy basic, widely-agreed-upon principles of sound public finance." He also sums up the rationale behind such levying: "There's a perception among lawmakers that rental car excise taxes are 'good' taxes because they fall on tourists from other cities and states. While this is often not the case—more than half of rental car customers are local, not visiting tourists—it's a belief held by many lawmakers."
As Bill Connors, executive director and COO of NBTA, says, "Politicians have come to see the pockets of car rental customers as 'magic pots of gold' they can reach into any time there is a stadium, arts center, or other unrelated project to fund."
Car rental excise taxes even received attention last year from the Department of Commerce, when it asked the U.S. Travel and Tourism Advisory Board to report on " Restoring America's Travel Brand." The report noted: "There is no special benefit to rental car customers from such special venue taxes, nor is there a direct connection between renting a car and using the public facilities or programs the taxes fund."
Location is everything
It's important to note there is no geographic pattern for this type of taxing. In some cases, they're levied in cities and in other cases they're levied at specific airports. Therefore, not all rental locations are created equal. Last year, USA TODAY analyzed rental taxes and fees at the nation's 25 busiest airports and found the top five were:
Kansas City, 35% Seattle, 31% Houston/Bush, 30% Phoenix, 29% Dallas-Ft. Worth, 28%; Las Vegas, 28%
It was no fluke that Kansas City topped this list. In fact, car rental taxes are so exorbitant in that Missouri city that two tax economists, William Gale of The Brookings Institution and Kim Rueben of the Urban Institute, recently conducted a study in that market. They concluded business was down because customers were renting fewer cars and often crossing over into Kansas to rent.
Consider also the case of Missouri's two largest airports. A check of rates on Hertz.com the other day found a nightly rate for a compact car next month was $28.99 in Kansas City and $26.99 in St. Louis. However, the tab for all taxes and fees was only $6.97 in St. Louis and a whopping $17.84 in Kansas City, driving that rate of $28.99 up to $46.83. Included is a $5.51 "licensing cost recovery" and a $5.65 "customer facility charge," meaning the tax difference for a one-day rental in the two airports is a whopping $10.87 (see chart at left for more city comparisons).
As others have noted, clearly the raison d'être for such taxes is the presumption that very few consumers are likely to alter their travel plans based on mandatory car rental surcharges. But for those who pride themselves on thoroughly comparison shopping for travel bargains, it's worth noting that the price differences at nearby airports can add up.
Beware before you book
There's another factor at play here: The relative price of a daily rental is so low in certain cities—particularly in leisure destinations such as the Florida beaches or gambling towns—that the additional taxes are out of proportion to the product being taxed. A search on Travelocity for a daily rental of a economy car in Las Vegas next March found a rate of just $17.99, but that sum quickly rose to $27.22 because of $9.23 in taxes, including a $3-per-day "facility charge." In fact, in some cases the base price of a daily rental actually can be less than the sum total of all the add-ons.
This echoes my findings for a Consumer Reports analysis of car rental sites. In 2003, I authored a white paper entitled "Renting Cars Online: An Analysis of the Potential Benefits and Challenges of Booking Through a Car Rental website." That report stated: "There was much confusion over total pricing, including taxes, fees, and surcharges. Several websites provided different total prices for identical queries." The report added: "In addition, WebWatch was disturbed to find different tax rates for identical queries from one website to another, and even different tax rates from one car rental company to another within the same website."
In a few ways, conditions have improved somewhat for consumers shopping online. Thankfully, the Big Three travel sites—Expedia, Orbitz, and Travelocity—all provide detailed breakdowns of car rental taxes and fees. What's more, they also provide specific amounts in dollars and cents, not percentages. However, not all travel sites do this, so it's important to decipher such charges before you book.
In addition, it's worth noting that even the best estimates can be wrong, since some charges—particularly those listed by third-party travel agency sites—are not always exact. That's why Expedia posts the following message next to its car rental price displays: "Includes estimated taxes and fees. Car charges are billed at time of rental." The key word in that warning, of course, is "estimated."
A few more points
Here are some other suggestions to remember when pricing a rental car:
• Always comparison shop. The price of a rental can be quite different among competing travel sites, competing car rental firms, and even among nearby locations.
• Double-check to make sure you know exactly what the bottom-line price will be before you book.
• This advice applies to offline shopping as well. Whether booking through a travel agency, a reservations line, or in person at a rental counter, ask what the final charges will be before you provide your charge card.
• Make sure your calculations are based on actual dollar amounts, not percentages that could drive up the final cost.
• Remember that not ALL costs are mandatory. Some car rental sites will tally the rental tab alongside optional fees for collision damage waiver or extras such as safety seats or ski racks; don't select add-ons you don't want to buy.
• On the other hand, some optional fees become mandatory if you don't read the fine print. These include dropping off at a different location or not returning the car with a full tank of gas. Such expenses will be added to your charge card.
• Determine your rental needs before you arrive at the counter. This list includes additional driver waivers, optional insurance, and the need for options such as safety seats or cellphones.
• Many of the highest fees are charged by airport authorities. Consider renting off-airport, at facilities often accessible by a complimentary shuttle bus, or even from a downtown location if the cost/time ratio makes sense.
• For additional tips on the cost of renting a car, read the Federal Trade Commission's Facts for Consumers.
Bill McGee, a contributing editor to Consumer Reports and the former editor of Consumer Reports Travel Letter, is an FAA-licensed aircraft dispatcher who worked in airline operations and management for several years. Tell him what you think of his latest column by sending him an e-mail at USATODAY.com at travel@usatoday. Include your name, hometown and daytime phone number, and he may use your feedback in a future column.