Tuesday, January 22, 2013

Auto Rental Tax Disproportionately Hits Minorities/Low-Income Taxpayers

When Mayor Greg Ballard launched an effort to enact a 50% increase in the local auto rental tax to support the Capital Improvement Board, he argued that the tax increase would not hit Marion County taxpayers. According to Mayor Ballard, the tax is only paid by out-of-town visitors who rent cars at the airport. The auto rental industry takes strong exception to that claim, noting that more than half of their local rentals occur at their neighborhood branches. Of the local rentals subject to the tax, the industry says 61% of the taxes are paid by persons renting for leisure purposes, while 39% of the rentals are business-related. That's not all. A study released by the industry claims that minorities and low-income taxpayers pay a disproportionate share of the tax.

The car rental industry complains that the tax is discriminatory because it singles out people for renting automobiles as opposed to being a broad-based tax like the sales or income tax. According to the study by the Brattle Group, there are now 118 jurisdictions across the country with specific taxes on car rentals, an 8-fold increase since 1990. Enacting the tax has been an easy sale based on the perception that the tax was largely paid by out-of-town visitors, car renters can afford the extra tax and the tax is only paid by people who choose to rent a car. The Brattle Group's study claims each of these assumptions is demonstratively false.

National industry data shows that 54% of the car rental market is derived from neighborhood-based locations as opposed to 46% for airport locations, which matches the claims asserted by local representatives of the industry who testified before the City-County Council's Administration & Finance Committee. The data shows that about 50% of the people come from households earning more than $100,000. About 20% of the tax is paid by households earning less than $50,000, and 7% is derived from households earning less than $25,000.

What is perhaps more surprising is the tax's impact on minorities. The study found that African-Americans pay about 27% of the car rental taxes paid, even though they represent just 12% of the overall population. Caucasians households, by comparison, pay less than half of the tax despite representing nearly two-thirds of the population. The percentage of the tax paid by Hispanic households closely matched their share of the population, but the tax paid by other minority groups was nearly double the percentage of the population they represent.


guy77money said...

If you have an accident most people rent a car. Now I do understand that the insurance company will usually pick it up (some policies have the policy holder pick up some of the cost or all of the costs) the cost. Thus the tax is driving up insurance costs.

Gary R. Welsh said...

I believe the law carves out an exemption from the tax for cars rented while the owner's car is being repaired or replaced due to collision or loss.

Paul K. Ogden said...

Gary is correct about that though I think a lot of people don't know about an accident exception. The much bigger demand though from local people are those who rent cars to take long trips for business or pleasure.

Had Enough Indy? said...

The airport really pushes taxes, on top of the others.

I pick Avis at the airport and at 33 N. Capitol, downtown.

Downtown added 60 cents per day (energy recovery fee), 4% (marion county surcharge), 4 % (state vehicle rental tax) and 7% (state sales tax). So, 60 cents per day plus 15% taxes.

In addition to those fees and taxes, the airport rental cost an additional $4.00 per day (customer facility charge) and 11.11% (concession recovery fee). So, $4.60 per day plus 26.11% taxes and fees.

Gary R. Welsh said...

I rented a car at the airport in Miami once on a trip to Florida. Thought I had a super bargain until it came time to return the car. The bill increased about 50% just to pay all the taxes and surcharges. Never rented a car again.