Taking Out-of-State Drivers for a Ride | Commentary

Labor Day marks the unofficial beginning of fall with back-to-school season, cooler temperatures and, for some, the long-awaited return of football. The National Football League season kicks off on Sept. 4 in Seattle with a rematch of the infamous 2012 “Fail Mary” game between the Seahawks and the Green Bay Packers. Believe it or not, this game holds a lesson for students of transportation and tax policy — both teams are known for their superstar quarterbacks and rabid fan bases, but there is a significant difference in how they chose to finance their stadiums. Lambeau Field’s renovations were partially funded by a sales tax paid by those who benefit the most from the team and the stadium — the citizens of Green Bay, Wis. CenturyLink Field, on the other hand, was built using money collected from discriminatory taxes on car rentals paid by visitors to Seattle.

The American Society of Travel Agents has long been concerned about the growing trend of heaping taxes on car rentals, a favorite tactic of cities and local governments looking to raise funds for building stadiums or filling holes in city budgets. This taxing strategy is popular with local politicians because it is seen as a “free lunch” — local residents get a new stadium, and tourists and business travelers pay the bill. However, this approach runs into the Commerce Clause of the Constitution, which was designed to specifically prevent states from passing laws that burden interstate commerce or whose objective is local economic protectionism. Clearly that is the intent — and partially the effect — of these discriminatory rental car taxes. Cities and states want to export their tax burden, a practice some would call “Taxation without Representation.”

The Constitution vests Congress with the exclusive right to regulate interstate commerce. When the railroad industry became burdened with excessive local property taxes, Congress passed legislation limiting those local taxes on railroads. When the airline industry became a target for excessive state and local taxes, Congress passed legislation restricting the ability of state and local governments to tax airline customers. Similar federal laws protect the commercial bus and motor carrier industries. Barring these federal laws, these other modes of transportation would no doubt face the same level of excessive taxation as rental car customers do today.

ASTA and our members have a significant stake in this debate, given that travel agency sales account for 31 percent of the $24.5 billion U.S. car rental industry. These discriminatory taxes are a classic illustration of the ill effects of short-term thinking. Over the long term, such taxes threaten to suppress travel and tourism to and within the jurisdictions that impose them. Leisure travelers and corporate business planners alike exercise care in choosing among competing destinations for vacations and meetings. Once a destination is overburdened with state and local taxes, whether for hotel rooms, car rentals, airport fees, or some combination of these, that destination threatens to become cost-prohibitive to potential visitors.

That is why ASTA — and a growing broad-based coalition of consumer and business organizations — supports HR 2543, the “End Discriminatory State Taxes for Automobile Renters Act,” sponsored by Reps. Steve Cohen, D-Tenn., and Sam Graves, R-Mo., with a multitude of bipartisan co-sponsors. This bill, modeled after existing federal laws that protect the other industries in interstate commerce mentioned above, would prohibit any future state or local discriminatory rental car taxes but would not interfere with existing revenue sources. The bill is in the House awaiting action. For the benefit of all travelers, it needs to pass this Congress.

Some might equate trying to get this Congress to act equivalent to a Hail Mary pass, but now is the time for Congress to throw a flag on local governments that still think they can soak out-of-town renters with excessive taxes to pay for local projects. 

Eben Peck is vice president, government affairs at the American Society of Travel Agents, the leading global advocate for travel agents, the travel industry and the traveling public.

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