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Taken for a Ride: Economic Effects of Car Rental Taxes

July 17, 2006
By William G. Gale Ph.D. and Kim Rueben Ph.D.

The taxation of rental car usage has increased dramatically in recent years. Currently, there are at least 80 car rental taxes in effect in 38 states and the District of Columbia.

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The taxation of rental car usage has increased dramatically in recent years. Currently, there are at least 80 car rental taxes in effect in 38 states and the District of Columbia. These are excise taxes that are above and beyond standard retail sales taxes, vehicle licensing fees, and other appropriate taxes and fees. In addition, new car rental taxes are under consideration in at least 24 states.

This paper analyzes several aspects of the economics of car rental excise taxes, emphasizing the following questions:

  • Why is the use of car rental taxes increasing?
  • Are actual and proposed car rental excise taxes economically sound means of collecting public monies?
  • Does the taxation of the customers of one industry place an unfair and disproportionate burden on too few members of society to fund a “public” project?
  • What are the effects of car rental excise taxes on local consumers and businesses?
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Taxes Government Spending