Car-sharing services seen suffering under punitive taxes

Reuters News
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Posted: Jun 24, 2011 11:39 AM
Car-sharing services seen suffering under punitive taxes

By Mary Wisniewski

CHICAGO (Reuters) - Car-sharing services, which allow city residents to use a car for a few hours in order to run errands or visit friends in the suburbs, have soared in popularity in recent years due to high gas prices.

But many municipalities discourage greater use by levying disproportionately high taxes on the services, according to a study by DePaul University's Chaddick Institute for Metropolitan Development, based in Chicago.

The study found that among the 25 largest cities offering car-sharing services such as Cambridge, Massachusetts-based Zipcar, combined taxes on the service averaged 17.93 percent for one-hour reservations, roughly double the sales tax rate in these same municipalities.

"The economic disincentives created by excessively high taxation on car-sharing services run counter to sound public policy," said Joseph Schwieterman, professor of public service and Institute director, who co-authored the study, published this week.

Car-sharing has environmental benefits because consumers drive less and walk and bike more after joining a car-sharing organization, without reducing their use of public transit, according to the DePaul study.

Gas is included as part of the rate, and car-sharing has increased in popularity since the gas price spikes of 2008.

Taxes on car-sharing were higher than most other forms of consumer transportation, including airlines, the study found. Only Portland, Oregon, had no tax on car-sharing services.

Schwieterman said it appears cities apply taxes and fees designed for general car rental services without considering that car-sharing is used differently.

Car-sharing services are membership-based and cars are used for short periods of time and mainly for local trips, like grocery shopping, Schwieterman said.

Car rental companies agree taxes are too high on the industry overall, but do not think car-sharing companies should receive special consideration, according to Bob Barton, president of the American Car Rental Association.

"It's the same model," said Barton. He said there is a problem with high taxes on car rentals, and both car rental companies and car-sharing companies should address it as a group.

Enrollment in car-sharing services has nearly doubled since 2008 and totals about 518,000 members nationwide at the start of 2011, the DePaul study said.

Zipcar is the largest for-profit provider. Among nonprofits, City CarShare in San Francisco, I-GO in Chicago and PhillyCarShare are among the largest.

Chicago in 2005 amended its municipal code to eliminate a lease tax on hourly car-sharing. "It makes it easier for members," said Sharon Feigon, CEO of I-GO CarSharing.

(Editing by Jerry Norton)