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.