Congressman Steve Cohen

Representing the 9th District of Tennessee

Cohen Reintroduces "The End Discriminatory State Taxes for Automobile Renters Act"

June 27, 2013
Press Release

[WASHINGTON, DC] – Congressman Steve Cohen (D-TN-9) today joined with Congressman Sam Graves (R-MO-6) to introduce legislation to prohibit discriminatory taxes on the rental of motor vehicles.

“During these tough economic times, state and local governments are looking to raise revenue.  But there is no place for discriminatory taxes in business,” said Congressman Cohen. “These taxes raise prices for consumers and harm our local employers. This is an unfair practice that must stop.”

“Congress passed legislation in 1994 that prohibited new discriminatory taxes from being imposed on car rental companies at airport locations for non-airport related uses,” said Congressman Graves.  “Unfortunately, local governments have found and exploited a loophole to finance stadiums, convention centers and other non-airport related projects.  This bill would close the loophole that discriminately taxes unsuspecting consumers.” 

Sometimes when an individual rents a car from a car rental company they are told the daily rate will be about $25.  At the end of the rental, the charges from the car rental company are closer to $35 or $40 per day.  Questions inevitably arise about the source of these additional charges.

A small portion of the difference between the car rental company’s daily rate and the amount charged is state or local sales taxes, which consumers pay on most goods and services they purchase.  Increasingly, however, the bulk of these additional charges are state and local discriminatory excise taxes on car rental consumers -- local taxes imposed to build sport stadiums and convention centers.  No matter what the size or scope of a local project, states or localities have sought to “export” the burden of funding these local initiatives by taxing “out-of-town” visitors renting cars in their state, city, or county.  These taxes also impact local residents who rent a truck for weekend hauling or a replacement car while theirs is in the shop.

These discriminatory excise taxes on travelers have become increasingly popular in recent years.  In 1976, there was one such tax.  Since then, more than 117 special rental car taxes have been enacted in 43 states and the District of Columbia.  As a result, since 1990, car rental customers have paid well more than $7.5 billion in special taxes to fund projects with no direct connection to renting a car.  In addition to stadiums, car rental customers are also footing the bill for performing arts centers and a culinary institute.  A recent study conducted by the Brattle Group found that the taxes fall disproportionately on minority households; the taxes raise auto insurance costs; and these taxes reduce purchases of cars by rental companies -- an increase of 10 percent in tax relative to the base rental rate reduces rental demand, and, therefore, purchases of new cars by rental car companies, by approximately 12 percent, according to the study.

The End Discriminatory State Taxes for Automobile Renters Act would impose a permanent moratorium on discriminatory excise taxes on car rental customers by declaring these taxes an undue burden on interstate commerce.  In the past, Congress has enacted similar protections from discriminatory state and local excise taxes for other interstate travelers such as airline, train, and bus passengers, and for the property of interstate transportation industries such as the airlines, buses, trains, and motor freight.  The measure would logically extend this protection to car rental consumers. 

The legislation’s moratorium is prospective only.  The bill “grandfathers” existing car rental excise taxes to prevent a cut-off of funding for projects financed through these taxes that are already underway, as long as the state or local authorization for the existing taxes does not expire or governments do not try to increase the rate of the tax.  And the bill would not in any way restrict the ability of local governments to enact nondiscriminatory, general taxes such as sales and income taxes.

The measure has been endorsed by a wide range of stakeholders, including the National Consumers League, the Global Business Travel Association, United Auto Workers, the Property and Casualty Insurers Association of America and the automobile manufacturers.