Thursday, February 6, 2020

Rental Car Companies Collect $4 Billion in Special Treatment While Complaining That Their Competitors Get Special Treatment

By Eric Boehm - February 06, 2020 at 11:00AM

State governments grant rental car companies special favors worth billions of dollars each year. Now those same companies are asking for one more: regulations to cripple potential competitors.

Ohio, for example, passed a law in July to tax and regulate car-sharing businesses like Turo and GetAround—sort of an Airbnb for your car. These peer-to-peer services let individuals browse a website or mobile app and select which car they want to rent, at a price and duration determined by the vehicle's owner. Like Airbnb, Turo and GetAround simply facilitate the transaction and take a percentage of the fee paid by the renter.

The rise of these alternative markets worries traditional rental car companies. As Reason reported in 2018, Enterprise Rent-A-Car and the American Car Rental Association, an industry group, have been pushing state lawmakers to curb the growth of peer-to-peer rental platforms. Usually they do this by arguing that it's only fair to treat all rental car platforms the same.

Hence the law passed in Ohio.

"This effort is all about parity and fairness, in Ohio and every other state," said Ray Wagner, senior vice president of government and public affairs for Enterprise Holdings, which also owns the Alamo and National rental car brands, in a statement about the passage of Ohio's new law.

"It just doesn't make sense for one section of this industry to benefit from loopholes and special carve-outs," he added.

That's true. But traditional rental car companies benefit from more than $4 billion in annual tax breaks and subsidies from state governments—thanks to "loopholes and special carve-outs" that aren't available to the newfangled peer-to-peer rental platforms.

The biggest of those loopholes is the simple fact that rental car companies are exempt from paying sales tax when they buy new vehicles. According to a report published this week by NetChoice, that sale tax exemption saved rental car companies more than $3.5 billion last year. In California, where other residents have to pay a 7.25 percent tax on the price of a new car, that tax break saved rental car companies more than $676 million in 2019.

That sweet deal isn't available to users of Turo or GetAround. Good luck telling your state that the reason you didn't pay your vehicle sales tax bill is because you plan to rent the car as a side hustle.

"State governments hand out billions to companies like Enterprise and Hertz, providing them an unfair advantage over competitors, like peer-to-peer car-sharing services," says Steve DelBianco, NetChoice's president.

The NetChoice report also examines the so-called "vehicle license fees" tacked onto the cost of renting a car through traditional platforms such as Enterprise or Hertz. Consumers probably don't think about that fee as anything different than a tax—but in reality, it simply provides additional revenue for the rental car platform and does not go to local or state governments.

Think about it this way: Most businesses have to take overhead costs, such as licensing fees, into account when setting their prices. But rental car companies have used their influence in state capitals to get laws passed that effectively allow them to charge a lower sticker price and then hit consumers with a separate fee to cover a basic cost of doing business.

Car owners using Turo or GetAround don't just have to pay their own vehicle sales taxes and licensing fees; in many places they are already subject to high taxes. A 2016 report from researchers at DePaul University found that "nearly a quarter of the country's 40 largest cities impose retail taxes that increase the costs of a one-hour car-share by more than 30 percent."

Despite the stacked deck, car-sharing continues to grow. About 10 million people used car-sharing in 2017, and estimates suggest that number could grow to 36 million by 2025. In a survey of traditional rental car operators taken last year, "competition from peer-to-peer networks (Turo, GetAround)" was rated as the biggest threat to business.

Traditional rental car companies aren't facing an existential threat from car-sharing. Just as how Airbnb will never be able to offer enough volume to displace hotels completely, services like Turo are not going to wipe out companies like Enterprise, which owns more than 2 million vehicles. But peer-to-peer car-sharing does provide a worthwhile alternative that some people might prefer, and it does seem likely to cut into traditional rental car companies' margins.

If traditional rental car companies were really seeking a level playing field in their contest against these alternatives, maybe they should give up their special sales tax break. Don't hold your breath.


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