Tax principles

The Wenatchee World had an interesting editorial on Friday about the recent Flexcar rental car tax controversy in Seattle. As noted in the editorial:

For a taxing double standard consider the case of Flexcar. This is a very cool, clever company that rents — excuse me, shares — cars by the hour, mainly in big cities. It started in Seattle in 2000 and since has grown immensely and spread across the country. The company keeps cars in strategic parking spaces dispersed through the city. Customers pay a membership fee, reserve a car on the Web, pick it up and run errands or whatever. People no longer need own a car. They can take public transit downtown and if they need a car, go to Flexcar and pay around $10 per hour. Very convenient, reduces congestion and cuts down on unnecessary driving and the emissions that go with it.

This is very good. People like Flexcar. Government likes Flexcar. The trouble is, Washington state taxes rental cars in a very big way, especially in King County, where the proceeds go to help pay for expensive things like Safeco Field mass transit and the county's general fund.

Earlier this year the Department of Revenue reluctantly pointed this out. Flexcar, it said, you are renting cars. If you rent cars you pay the same tax as all companies renting cars. It may be hefty — a 9.7-percent rental tax on top of a nearly 9-percent sales tax — but the law is the law.

Please, said Flexcar. We are not a car rental company, we are a "car sharing company." Our "business model" is different. We have "members," not customers. And the members say that adding a near-10-percent tax to their bill might affect their buying decisions.

This brought an extraordinary plea from Gov. Chris Gregoire, who asked the Department of Revenue to consider the issue carefully. She did not tell the department not to tax Flexcar, but came close.

Since the Department of Revenue was unable to let Flexcar escape the rental car tax it sounds like the legislature will be asked to grant it an explicit exemption. This is a big no-no when it comes to sound taxing policies. WPC's Policy Guide for Washington State highlights this fact:

The tax system should be focused on raising needed revenue for government, not directing the choices and behavior of citizens. Policymakers should seek to lower the overall tax burden to promote prosperity and opportunity in the economy for the benefit of all citizens.

Comments

[Drew]

While the concessions Gregoire wishes to extend to Flexcar are amicable, we need to 'call a spade a spade' and admit they are a rental company. Hertz and Enterprise could make the same argument if they created a program to share cars hourly on a member basis. I seriously doubt the same concession would be extended to an existing 'rental' company.
Something else to consider is while Flexcar is a 'green' company who is doing their part for the environment, (they're carbon neutral, at least their offices are-not the cars) it is a for-profit company and it is held by an out-of-state venture firm headed-up by Steve Case, the AOL billionaire.
I presume this tax deferral will become less popular as word of the buyout, erm, merger with Zipcar spreads. The two companies have different mission statements. Flexcar has an environmental slant while Zipcar is a 'lifestyle brand' who caters to those who already own cars, but would like to drive a nicer one on an hourly basis.