Cleveland, Ohio is yet another city that holds a special place in the heart of the AutoSlash team. The host airport of a former Continental Airlines hub, a few of us had memberships to the Rock and Roll Hall of Fame gifted by that airline. The city also has a number of fantastic sports teams plus the Cleveland Browns. Add a river that's caught on fire more than a dozen times* and one knows that they are in a happening place with a true industrial history. The city even adopted their own rental car transaction fee before the rival city of Pittsburgh, Pennsylvania, and that fee is a reason for a visit by the AutoSlash Fee Detective.
* The Cuyahoga River: Fire-free (as far as we know) since 1969.
A Fee on Expensive ($25+) Rentals
The City of Cleveland implemented a "Motor Vehicle Lessor Tax" in the year 1991. The tax was originally set at $3 on all rental transactions between April 1, 1991 and April 1, 1992. From there, it became $4 on all rentals with a contract price above $16 between April 1, 1992 and August 1, 1995, and then $6 on all rentals with a contract price above $25 after August 1, 1995.
- What happens when the contract price is above $25 today? Glad you asked. The City of Cleveland receives the $6 tax.
- What happens when the contract price is above $25 but well under $25 after discounts? Glad you asked. The City of Cleveland receives the $6 tax.
There's an unfortunate ambiguity in the law when it comes to this tax. The law says there's a $6 tax when a rental contract is greater than $25 but doesn't address what happens when a rental contract is less than $25 after discounts. How do rental car companies respond when a law's poorly written but has been on the books for more than 26 years? Well, it's better for a rental car company to overcollect and remit a payment that's too high than to undercollect a tax or remit the wrong amount (see Hertz in Pittsburgh).
None of the AutoSlash team are lawyers but it's clear that the law doesn't address rentals where the post-discount amount is less than $25. And a $6 flat tax is a much higher percentage burden on the cheapest rentals. For instance, this $19.14 base rate rental gets subjected to the tax despite another $5 discount shrinking the "base rate" to $14.14. The problem? The total rate with other taxes was $25.49 before the $5 discount ($19.14 plus $6.35 in taxes). Encountering another $6 tax from the City because of other taxes the City imposes is not consumer friendly.
Always nice to pay $12.35 in taxes on a $14.14 rental.
We reached out to the City of Cleveland requesting clarification but we don't have a good history of getting a response from municipalities when we ask questions about legal interpretations (such as why Denver residents have been assessed airport fees at off-airport locations).
What's the Fundamental Purpose of this Tax?
Mad enough that if you find a great rental car deal, you might be stuck paying a tax that's not stipulated clearly in the City of Cleveland's tax code? It probably doesn't help to know that the City of Cleveland passed the tax simply to generate additional revenue for the General Fund. And the tax is effective -- it raises more than $3 million annually from individuals who are largely perceived to be visitors in rental cars. The enacting legislation suggested that the fee might be used for some noteworthy purpose:
For the purpose of providing funds for general municipal operations, procurement of fixed assets or permanent improvements, payment of debt charges, the elimination of deficits in City funds, contributions for recreational, cultural, and extracurricular programs in the Cleveland Public Schools, and for all other lawful purposes, an excise tax is hereby imposed upon the privilege of leasing motor vehicles within the City to a lessee.
Effectively, the "purpose" clause is meaningless. "An excise tax is hereby imposed upon the privilege of leasing motor vehicles within the City to a lessee" is concise and accurate but someone (ostensibly) didn't want the funds to be seen as nothing but a money grab. The City just promises to not break federal or state law with the proceeds and there's a possibility (highly improbable, but possible) that something positive just might happen for the students in the Cleveland Public School System as a result.
Who will think of the children? Probably not the spenders of this tax revenue.
So the next time you're in Cleveland, enjoy the local scene as it's truly exceptional (well, a day at FirstEnergy Stadium is exceptional in a different sense of the term). Visit other communities along Lake Erie, such as the birthplace of Thomas Edison in nearby Milan. Just remember that when you pick up your ride, the City of Cleveland is also taking you for one.
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