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Greenberg testimony on H.R. 2469, "End Discriminatory State Taxes for Automobile Renters Act of 2011"

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February 1, 2012

Contact: NCL Communications, (202) 835-3323, This email address is being protected from spambots. You need JavaScript enabled to view it.

Testimony by Sally Greenberg, NCL Executive Director:

Good afternoon, Mr. Chairman and Ranking Member Cohen and Members of the Subcommittee. Thank you for the opportunity to appear before you in support of H.R. 2469, a bill entitled the “End Discriminatory State Taxes for Automobile Renters Act of 2011.”

My name is Sally Greenberg and I am Executive Director of the National Consumers League, the nation’s oldest consumer organization, founded in 1899 with the mission of protecting the interests of workers and consumers and creating a more fair marketplace for both.

Mr. Chairman, consumers today feel that in many of their transactions they are nickel and dimed, whether it is their cell phone bill, late fees and finance charges on credit and debit cards, bogus convenience fees added onto tickets for live performances or extra charges for baggage, food or pillows on an air plane. Indeed, a good example is the survey from Consumer Reports, August 2010[1], which found that there are myriad fees that irk travelers: rental car fees, fees for hotel safes, minibars, hotel gym, ice in the drinks, fees for buying a gift card, fees for using that same card and the list goes on and on.

The National Consumers League feels consumers’ pain – and unfortunately most of the time consumers have little power to challenge these fees. Indeed, the Consumer Reports article contained this paragraph:

But our hearts really go out to the couple who rented a compact car in Boston last summer. They paid $444.37 for 15 days of driving. Then came the rental vehicle surcharge, customer facility charge, parking surcharge, energy recovery fee, fleet recovery surcharge, concession recovery fee and state tax.[2]

So today we are here to support legislation that says: Enough!

HR 2469 will prospectively bar many discriminatory car rental taxes – which are simply added fees – imposed by states and localities. These fees have been increasingly piled on consumers who rent cars in order to fund pet projects.  HR 2469 will grandfather in existing taxes and not affect the ability of states and localities to impose general taxes that are levied on all citizens or businesses. But NCL believes that these same states and localities should not impose fees on consumers who rent cars when the fees have little or nothing to do with improving the services they receive. Indeed, according to the New York Times, the most common use of these excises is to finance sports stadiums and convention centers.  In a 2006 article, the Times noted that at least 35 sports stadiums were expected to be financed partly with subsidies from car-rental taxes. Other research has shown that in the 1990’s, subsidies provided 94 percent of sports stadium financing. [3]

Legislators who adopt these fees operate under the misperception that taxes on car rentals, which we believe make the taxes hard to justify. My predecessor and former NCL President Linda Golodner discussed the issue of fees and their impact on consumers in the Pittsburgh Post-Gazette[4] several years ago. Golodner noted how Congress has prohibited practices by state and local governments that unreasonably burden or discriminate against interstate commerce and transportation. Examples include the Railroad Revitalization and Regulatory Reform Act (1976), Airports and Airways Improvement Act (1978), Motor Carrier Act (1980) and Bus Regulatory Reform Act (1982).  So enacting HR 2469 would be following a long line of bills that prohibit discrimination in interstate commerce.

The Problem

As of this time, 43 states and the District of Columbia have imposed 118 excise taxes on car rentals. This is eight times the number of these taxes that existed in 1990. As noted above, rental car taxes tend to pay for entertainment items like stadiums, performing arts centers, or culinary institutes and not for vital services like schools, roads, libraries, hospitals or services to the elderly. Industry research indicates that rental car customers have spent more than $7.5 billion in taxes to fund the pet projects of elected officials.

A perfect example has been playing out for the past two years in my hometown of Minneapolis. The Minnesota Vikings already have the Metrodome, a beautiful indoor stadium right in the middle of downtown Minneapolis. But  Zygmunt Wilf, the Vikings’ billionaire owner, wants another one -- with a retractable roof! – and state lawmakers were asking consumers who rent cars to help pay for it with a 2.5% tax on rental cars to finance a new billion-dollar stadium.  The state still hasn’t figured out a long-term funding source for the new digs, so we’ll have to wait and see if rental car customers will ultimately foot the bill.

More than half of those who rent cars in Minnesota are residents of the state. To add insult to injury, Minnesota residents are already paying a special 6.2% excise tax on car rentals, a tax that was adopted to pay for the cost to the state of trying to attract the Super Bowl. That tax was supposed to expire in 2005, but it was extended, even though the revenue it raised has far exceeded its original purpose.   Talk about fleecing the consumer!

Tourists are also affected by these pervasive fees. They might be easier to tax as non-constituents, but tourist charges are also spiraling out of control. According to the New York Times, taxes and other costs such as vehicle licensing fees or high levels of excise taxes raise the average rental bill 28 percent at airport locations.

Excise taxes on car rentals hurt nonprofits

In addition, as head of a nonprofit organization overseeing a staff of 16, when my people travel – or even have meetings locally and need transportation- we often must rent cars. I see the bills come in, and the excise fees and sales taxes together represent a hefty percentage of the entire rental.

As an addendum to this testimony, I’ve provided exhibits that demonstrate that the taxes we all pay when we rent cars are similar to what the couple in the Consumer Reports article experienced -  in the form of receipts from my car rentals over the past year.  Here are a few highlights:

In September of last year I rented a car in Minneapolis; the base fee was $128.97, but the following taxes were added on: CFC@2 a day, $6.00, APCONRGFEE - $14.33, State Tax - $10.86, Vehicle Fee $7.47, Rental Tax - $9.26. Total:  $176.89 So 37.5% of the total cost in Minneapolis was fees and taxes.

In November of last year I rented a car in Chicago. The base amount was $123.11, but the following taxes were added on: MTRVEH Tax - $2.75, CFC@ $8.00 a day x 5 days, $40.00, Motor Vehicle Tax  – 5 days @ $1.20 $6.00, State Tax $25.82 Total: $197.68 So 37.7% of the total cost in Chicago was fees and taxes.

It is worth noting that I had no idea when I paid these fees what they were for – what is APCONGRFEE in Minnesota? What is MTRVEH in Chicago? What is VLF? What are CFC fees in both Minneapolis and Chicago? They lack transparency and they seem duplicative.  In Minneapolis, I paid a state tax, plus a vehicle fee, plus rental tax . In Chicago I paid a MTRVEH tax, a CFC, a Motor Vehicle Tax and a State Tax. Where does it end?

These added costs also hurt nonprofit organizations like mine that operate on modest budgets but are vitally important to civil society.

And these taxes hurt the many families who are tourists visiting cities and towns across the country and are being required to fund projects for which they are unlikely to derive any benefit and are not essential services.

We understand why local elected officials have increasingly turned to car rental transactions to raise fees for stadiums and impose fees. They undoubtedly want to escape the wrath of their own constituents who have the power to vote them out of office if taxes go up. So why not shift the tax burden onto someone else? Who better than out-of-towners who come to their cities and towns to do business or visit friends and family.

Misconceptions about who rents cars in America

Unfortunately, politicians who pass these laws taxing rental car transactions are operating on several false assumptions. First, that the vast majority of people who rent cars live outside of the state or locality. Second, that most consumers who rent cars are either businesses who won’t feel the extra charges or affluent consumers who won’t notice an extra $30 or $40 fee on a car rental.

Let me address each of these issues in turn:

First, the myth that most people who rent cars are from out of state. If local officials conducted research on who rents cars, they would learn that many people who don’t own a car because they can’t afford rent when they have a specific need – like taking an elderly relative to a doctor’s appointment, moving a relative from one residence to another, taking a child to a doctor’s appointment, visiting a relative in prison, or for a special occasion like a wedding or graduation.

Consumers who rent cars for these reasons are not the affluent out-of-town businesspeople that state and local legislators may assume rent most of the cars– far from it. And they need affordable car rental options without the multitude of indecipherable fees and charges.

A June 2010 study conducted by the Brattle Group (A study commissioned by the rental car industry), a Cambridge, MA based consulting group that looks at economic impacts, found that the estimated total revenue for rental cars in the US for 2004 was around $17.6 billion, with home city rentals accounting for $9.5 billion or 54% of the industry’s annual revenues. This conflicts with many legislators’ assumptions about who rents cars. The mayor of a suburb north of Atlanta is a case in point: “We’re not raising any tax. I didn’t think it would be a big deal as most rentals are visitors anyway.” The record is replete with such statements.

A second misconception is that affluent consumers and businesses rent most of the cars. The same Brattle Group study found that this is not the case. In fact, 19% of these car rental excise taxes are paid by working families that earn less than $50,000 a year and 7% of the total was paid by households earning less than $25,000. Enterprise Car Rentals estimates that 25% of its customers have incomes below $40,000.

The Brattle study also found that African-Americans generate 26% of the rental car revenues and pay 27% of the excise taxes, despite accounting for only 12% of the US population. Members of other minority groups pay 13% of the total car rental excise taxes, despite being only 7% of the population, while high-income households –defined as households earning over $100,000 pay only half of these excise taxes, which means the rental car excise taxes are a very regressive tax.

In a similar study, two leading tax policy experts, William Gale of the Brookings Institution and Kim Rueben of the Urban Institute, analyzed the impact of a $4-per-day rental car tax in Kansas City, MO.[5]

Gale and Rueben found that piling taxes onto car rental customers is both inefficient, because it can distort choices about modes of transportation and send people across state borders to avoid even a modest tax, and that the taxes are also inequitable. Communities that already are taxing car rental customers might want to take another look at their working assumptions and long- term strategy.

Conclusion

With an eight-fold increase in taxes on rental cars since 1990, it seems clear that the multitude of fees, taxes, and charges that have so dramatically inflated the cost of renting a car has gotten out of hand. NCL understands the importance of citizens paying their share of taxes to provide critical services that we all rely on – for our schools, hospitals, libraries, roadways, and for clean water and safe roadways. But when rental car customers are asked to pay for sports stadiums and the taxes imposed seem to have no limit, with consumers having no idea what the tax is, let alone what it is being used for, its time to say, enough is enough! Consumers are tired of taxes and fees without having any understanding of where that funding is going or why they are being asked to pay them.

For the reasons stated above, NCL is pleased to offer our support for H.R. 2469, which will help put the brakes on discriminatory taxes on consumers who rent cars. We thank you for inviting the National Consumers League to share our views with you today and urge you to support this important legislation.


 


 

[1] Fees That Irk Consumers, Consumer Reports, August 2010 http://www.consumerreports.org/cro/magazine-archive/2010/august/money/travel-fees/overview/index.htm

[2] Ibid.

[3] How Far Would You Drive to Avoid a Rental Car Tax? NYTimes, David Cay Johnston, July 17, 2006. http://www.nytimes.com/2006/07/17/business/17tax.html

[4] Private Sector: Pain, No  Gain. Car rental excise taxes are discriminatory and bad policy,

http://www.post-gazette.com/pg/07219/807421-28.stm#ixzz1ksWJPsRihttp://www.post-gazette.com/pg/07219/807421-28.stm

[5] How Far Would You Drive to Avoid a Rental Car Tax? http://www.nytimes.com/2006/07/17/business/17tax.html