Washington, however, will not. Discussion in Olympiaon the issue stalled this year. So Washington car-share members are still paying double taxes: sales tax and car-rental tax. It’s disappointing, considering that the legislature passed a law requiring steep reductions in both greenhouse gas emissions and driving overall. Car-sharing does both of those things quite effectively.
Revenue authorities in Oregon and California, meanwhile, haven’t moved to collect rental-car tax from car-sharing companies, as far as I’ve been able to tell. Oregon and California readers, please speak up if I’m mistaken!
So, only Washington is penalizing car sharing among Cascadian jurisdictions. And Olympia’s disappointing decision comes with a silver lining—more on that in a moment.
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At base, the car-sharing tax issue is this: Is car sharing the same thing as car rental? If it is, it should pay the special sales tax on car rentals that British Columbia, California, Oregon, Washington, and many other jurisdictions impose. If it isn’t, it shouldn’t be taxed twice—once with regular sales tax and a second time with car-rental tax. In King County, double taxation yields an effective sales tax rate near 20 percent on Zipcar. (As I noted before, it’s particularly galling that car-sharing gets taxed double while new car sales get big tax breaks.)
The differences are clear in the paradigm cases. Car rentals extend maximum driving potential to travelers, giving them a car at their disposal while they’re traveling just like at home. Conversely, car-sharing is an antidote to car ownership: it allows us to own fewer private vehicles, by making vehicles available by the hour from neighborhood locations. As a legal distinction for tax purposes, British Columbia decided to exempt car rentals that last fewer than eight hours.
But the line between renting and sharing isn’t always clear. For car-less people like me, some trips last a while. For example, moving my eldest son to college was an overnight trip. I rented a van and paid the car-rental tax. Double taxing me for taking my son to college makes no more sense than double taxing me when I Zipcar my daughter to Girl Scouts.
Such fuzzy lines are what made the decision tough for state legislators, even those who otherwise support car sharing. They would be irresponsible to endanger the revenue streams needed to pay public bonds, such as those supported with rental car taxes.
This winter, a Wall Street Journal article (subscription required), documented a plausible threat to rental-car tax revenue. It described how Hertz, U-Haul, and especially Enterprise Rentacar are all about to enter the car-sharing market. (This nonsubscription site covers some of the same developments.) Thus, it’s conceivable that exempting car-sharing could create a loophole through which most of the car-rental tax would slip. (I don’t believe this will happen, but legislators don’t all agree about the risks.)
What’s good about this news? Well, double taxation is no good. But the fact that Enterprise, Hertz, and U-Haul are preparing to enter the car-sharing market? That’s great! These companies’ giant fleets of vehicles, marketing power, and access to financing could massively accelerate car-sharing’s growth. They could make car-less and car-lite living viable options for tens of thousands of additional people, trimming emissions, slashing household expenses, preventing collisions, and slowing the hemorrhaging of fuel dollars from our job market.
Now, if we can just fix the double-taxation issue . . .
In the near term, a BC-like exemption for short rentals makes sense. In the long run, though, we might do better to replace car-rental taxes entirely. Smart transportation policy requires that we pay for transportation by the trip—something that car rentals do better than does car ownership. Perhaps we could swap car rental revenue for carbon tax revenue. That way, we’d stop penalizing smart transporation choices, even while we put a price on pollution.