When states across the U.S. find a budget hole that needs filling, rental car taxes are a comparatively easy target for "revenue enhancement". By this point, it feels as if we've written about this topic more often than the industry trade group Curb Auto Rental Taxes! And while the increased taxes are often earmarked for projects that residents don't want to fund directly (like professional sports stadiums), the recent debate out of the State of Montana's Special Legislative Session is use new taxes on hotels and rental cars to help work their way out of a $227 million budget deficit. The primary opposition so far? The hotels and rental car companies, although the real pushback should be from residents.
The Current Standing of Rental Car Taxes in Montana
No offense intended to the State of Montana, but comparatively remote locations often result in pricey rental car reservations, like this $513.53 one-week rental for a mid-size car from the Helena Regional Airport.
Renting a car for a week in Montana can already be expensive!
In order to understand how the proposed increase would impact taxes, it's always good to have a quick refresher on the existing taxes. So for the Helena airport, here's a quick recap of the five listed taxes and fees at the end -- three of the five are actual taxes (two to the airport, one to the state) and two of the five are just fees made up by the rental car company.
- The 10% Concession Recovery Fee goes to the airport just for allowing the rental car company to operate there,
- The Customer Facility Charge goes to the airport to help pay for the current (and future) rental car structures -- those renting longer pay due the time away from the facility,
- The Energy Recovery Fee is just a cash grab by Avis to pay for energy costs (an ordinary cost of doing business),
- The Vehicle Licensing Fee pays Avis for the cost of registering cars (and more) although registering cars remains a critical component of renting cars,
- And then there's the 4% excise tax to the State of Montana.
Under the current proposal, the excise tax on rental cars would be increased from 4% to 10%, so the cost of this rental would increase by another $26.79. That increase in tax rate represents real money -- in much of the country, we can find renters a full rental day (with taxes) for less than $27!
What Do Government Officials in Montana Have to Say?
According to The Seattle Times, the Department of Revenue attempted to rationalize the proposal:
The temporary tax was considered because it would have minimal effect on Montanans and would be easy to implement.
We'll start at the end. Is "easy to implement" really the basis of Montana tax policy? If so, we could come up with many ideas that are even easier to implement. The concept of "easy to implement" really hinges upon whether an increase in rental car taxes has "minimal effects on Montanans".
And we sadly know from elsewhere in the country that most of the tax increase would actually be paid by Montana residents, not visitors as pitched. Of course, visitors come to the state but those Enterprise and Hertz locations in the neighborhoods don't serve visitors. The majority of rental car transactions are by in-state residents, such as when a car is in the shop, damaged in an accident, or a family/group just needs a different type of vehicle to make a trip. Figure out how much of that increase would be borne by in-state residents, then remember that visitors -- especially business travelers -- are already more likely to expense ride-hailing services than rental cars. Additional taxes on rental cars just give business travelers more of an incentive to find alternatives; even our team avoids rental cars or burns our award days (which also removes sales/excise taxes) when the pricing no longer makes sense! In an attempt to pinch visitors, Montana's proposal actually shifts more of the burden to state residents.
Then there's the pièce de résistance concept of "temporary tax". If the "temporary tax" really helps fill a $227 million budget hole, it's probably not a temporary tax.
Is there any oceanfront property in Montana?
Fees, facility charges, and taxes got you confused and/or down? The Fee Detective can explain. Send your query to email@example.com and we may feature your question in an upcoming post.
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