Cities Find Rental Car Tax a Ripe Source of Revenue

Business travelers and their employers are taking a tax hit on car rentals, mainly because they’ve become a convenient revenue-raising target.

The reasons vary. Some cities that are building expensive new sports stadiums have found rental taxes are a quick revenue source--and one that doesn’t talk back, or vote, the way local taxpayers do.

Another reason, according to Rick Webster, a tax expert with the Travel Industry Assn. of America, is that car rental taxes have been lower--and thus riper for increases--than a similar source of revenue, hotel room occupancy taxes.

The industry association recently surveyed travel taxes in the United States and tried to find out whether the revenue ever comes back to something that benefits the traveler. In many cases, it found, it does not.

Even stadium building, while ostensibly a tourism activity, results in something that in the end is used more by local residents than travelers.

“It’s the realization that in most of these cities car rental [tax] rates are less than for hotels, so there’s an opportunity for growth,” Webster said. “We think it’s unfortunate that all of these city and state leaders see it as a way to make an easy hit on the traveler.”

The association’s survey found the heaviest tax rates for cars rented at the airport were in Chicago, 18%; New York, 13.2%; Las Vegas and Reno, both 13%; and Minneapolis 12.7%.

For cars rented at other than airport locations the top five were Las Vegas, 21%; Reno, 20%; and Chicago, Dallas and Austin, all 18%.

Sometimes cars rented at airports trigger higher fees because rental companies have to pay airport operators for doing business on the premises.

Webster advises travelers to compare tax rates both at the airport and off-airport sites to find out for sure.

As for hotel taxes, the group’s list for the biggest U.S. cities show that the highest rate is not found in New York, Los Angeles, Chicago or some other large urban area, but in Columbus, Ohio.

The Columbus room tax rate, a combination of state and local taxes, cashes out at 15.75%. That’s followed closely by Seattle at 15.2% and three cities at 15%--Houston, San Antonio and Anaheim.

The association also reports that the highest restaurant taxes--10%--are levied in Norfolk, Va.; Minneapolis; and Washington, D.C.