Car-sharing was supposed to be one of those disruptive trends that turned the auto industry upside down, while ushering in other, more positive societal changes. However, new research from DePaul University sees trouble on the horizon for the concept.
Researchers say the taxes imposed on rental car transactions may force ride-sharing into the slow lane. They point to steep rental car taxes that were originally aimed at out-of-town tourists and business travelers as stopping some local drivers from sharing a vehicle.
Their study documents the taxes and their effects across the U.S. In nearly every municipality, individual consumers who want to share a car are faced with steep taxes.
“The tax burden facing people who car share is a case of unintended consequences," said Joseph Schwieterman, lead researcher and director of the Chaddick Institute for Metropolitan Development at DePaul University. “No one expected that these taxes, which were added years ago to car rentals, would suddenly apply to thousands of people who merely want to use a car for a quick neighborhood trip."
When municipalities impose taxes on rental cars, they do so with the understanding their constituents won't pay them. It's almost always paid by out of towners, or business executives with expense accounts. It's similar to placing a tax on hotel rooms. The local governments get money without taxing the local citizens.
The study also found the average tax rates on car rentals rose from 15.6% in 2011 to 17% in 2016, making the burden higher than those on hotel rooms and airline tickets. Ironically, ride sharing services like Lyft and Uber aren't taxed as rental cars and thus face a much lower retail tax.
Each use is taxed
The tax is especially onerous for car sharing because it is imposed every time one of the individual consumers uses the car. The DuPaul researchers calculate that rental car taxation policies can add several dollars to even a short trip. This, they say, is bound to slow the growth of a trend that many believed would bring significant benefits to communities.
The study concludes the way around this unintended roadblock is for municipalities to address their rental car taxes, to create a more level playing field for car-sharing. As an example, they suggest a dramatic reduction in the tax on using a shared vehicles fewer than eight hours.