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Effects of Discriminatory Excise Taxes on Car Rentals

June 10, 2010
By Kevin Neels

We have been asked to evaluate the effects of discriminatory car rental excise taxes on specific groups of customers; and on certain forms of economic activity related to the car rental industry.

tax documents

We have been asked to evaluate the effects of discriminatory car rental excise taxes on specific groups of customers; and on certain forms of economic activity related to the car rental industry. Our study focuses on short term rentals rather than long term leases. We describe excise taxes as discriminatory because they are not broad based levies (like a sales tax or income tax), but rather specifically target rental car customers. 

To date, governments in 43 states and the District of Columbia have imposed 118 different excise taxes on car rentals in various jurisdictions—representing more than an eight-fold increase in the number of such taxes since 1990. Many additional excise tax proposals are currently pending across the country.  

These taxes have proliferated because of the perception that (1) car renters are from out-of-town, (2) car renters can afford the extra tax; and (3) car rental excise taxes will only be paid by those renting a car.  

We were asked by Enterprise Rent-A-Car to test the validity of these perceptions. Our findings show conclusively that each assertion is false, undercutting the primary rationale for imposing such taxes. In addition, our research indicates that car rental excise taxes have many unintended consequences, including: 

  • A significant impact on low income populations 
  • A disproportionate impact on minority households 
  • A measurable reduction in the number of vehicles purchased by rental car companies.
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Taxes Government Spending