Tax Administration Group Expresses Opposition to Bill to End Car Rental Taxes
Tax Administration Group Expresses Opposition to Bill to End Car Rental Taxes
- Institutional AuthorsFederation of Tax Administrators
- Cross-ReferenceFor H.R. 4175, see Doc 2009-27370
or 2009 TNT 238-26 
. - Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2010-13270
- Tax Analysts Electronic Citation2010 TNT 115-68
June 15, 2008
The Federation of Tax Administrators (FTA) is an association of the tax agencies in all of the 50 states, the District of Columbia, and New York City. We are pleased to have the opportunity to present our views on this proposed legislation that would, in the name of prohibiting "discriminatory taxes", preempt the authority of state and local governments to impose taxes on automobile rentals and property related to renting automobiles. We believe Congress should not undermine the ability of state and local governments to determine their own fiscal soundness, based on their own assessment of their needs and their abilities to meet them.
FTA opposes the "End Discriminatory State Taxes for Automobile Renters Act of 2009 (H.R. 4175)" as a wholly unwarranted intrusion into state sovereignty. The bill would:
Result in voluminous litigation,
Result in preferential tax treatment of businesses renting automobiles without any sound evidence supporting the need for such preferential treatment,
Increase taxes on individuals and other taxpayers to compensate for the Federally mandated reduced taxes paid by those that rent automobiles, and
Violate the fundamental principles of Federalism by restricting state and local government authority to develop tax and fiscal structures that meet the needs of their own communities.
The operative part of H.R. 4175 provides that "No State or locality may levy or collect a discriminatory tax on the rental of motor vehicles, the business of renting motor vehicles or motor vehicle rental property." The determination that a tax is "discriminatory" is made by Congress without any reference to the determinations that state and local policy makers have made based on their evaluations of the evidence of what the cost is of vehicles using their streets, highways and other state and local infrastructure and the appropriate methods of taxation to maintain that infrastructure. The Congressional mandate determines that discrimination exists by reference to other items or businesses subject to tax without evidence of the differences that may exist in those items or businesses. Such an unsound and broad preemption of state and local government authority undermines the constitutional position of state and local governments in our
Federal system, usurps state and local governments ability to solve their own fiscal problems and sends the wrong message in a time of economic turmoil.
Preemption Is Just Bad Policy
The preemption of state and local government authority over local tax matters does not recognize the role that these governments must exercise within their jurisdictions. Tax policy decisions must be made that reflect the needs and capability of the communities. For example, tourist communities have expenses related to non-residents that should be shouldered by those non-residents. There are limited methods by which that can be done. Taxes on automobile rentals is one such method that helps to fairly distribute tax liabilities to the parties that benefit from them, such as the development of a tourism infrastructure like convention centers, inner city transportation systems, and sports arenas. It is perfectly sound policy that automobile rentals should help offset these costs by having taxes raised from that activity. There is no reason why rentals of medical equipment, industrial equipment, or lawn mowers should be basis for determining the rate of tax that applies to automobile rentals.
The vague language of these types of preemption proposals and the lack of an administrative agency that can issue interpretative rulings leaves only the courts to determine what terms actually mean. In this legislation the Federal courts, relative strangers to state tax matters, are asked to decide the intricacies of this prohibition. This will add cost to the inevitable litigation and result in even greater punishment of the states and localities by the Congress. This is at best a cumbersome process that will inevitably result in different definitions in different jurisdictions. It will be virtually impossible to for a uniform set of rules to ever be developed because of the nature of trial court and appellate litigation.
Preserving Federalism
The fundamental principle of Federalism vests states and local governments with the responsibility of providing services and raising funds need to be able to pay for the services. Dictating a level of tax for automobile rentals and the property of the companies that rent automobiles, even if they are broadly based, undercuts the authority of state and local governments and creates a privileged class of taxpayer. We urge Congress from taking any steps in this direction. Taxpayers in general will have to shoulder the burdens that are created when special privileges are conferred on designated parties.
- Institutional AuthorsFederation of Tax Administrators
- Cross-ReferenceFor H.R. 4175, see Doc 2009-27370 or 2009 TNT 238-26 .
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2010-13270
- Tax Analysts Electronic Citation2010 TNT 115-68
