Taxes and Government Fees Make Up 25 Percent of Car Rental Fees

With gasoline averaging about $4.50 per gallon—over six bucks if you’re unlucky enough to live in California—President Donald Trump proposes a gas tax holiday to give American consumers a bit of relief. A reprieve from taxes is always welcome, but the real bite isn’t the federal 18.4 cents per gallon of gasoline and 24.4 cents on each gallon of diesel fuel. States charge far more, and that’s especially true if you rent a car, with gas taxes the least of the problem. In some places, more than half the tab for car rentals comes from taxes and government-mandated fees.

Travelers make for easy marks, since they rarely vote in the places that soak them for revenue. The taxes and fees add up. Last year, Tennessee’s WSMV4 reported that at Nashville International Airport, car renters are hit by “multiple taxes and daily charges that can add hundreds of dollars to vacation expenses.”

Taxes and fees come from multiple levels of government, including states, localities, and authorities such as those that run airports. That makes renting a car more expensive than many people expect.

“Rental cars are some of the most heavily taxed transactions in the United States,” Adam Hoffer and Jacob Macumber-Rosin wrote recently for the Tax Foundation. As the authors noted in a separate piece last year, the most burdensome state taxes are found in Minnesota, at 22.5 percent. But as they note in the recent piece, high local taxes and fees make Chicago the most expensive city, tax-wise, to rent a car:

Despite Illinois imposing one of the lower tax rates on rental vehicles at 5 percent—ranked 35th in our state rankings—the addition of a 15 percent City of Chicago rental tax, a 6 percent Metropolitan Pier and Exposition Authority (MPEA) tax, a 1 percent Cook County Automobile Renting Occupation and Use Tax (ART), and a $0.50 per rental City of Chicago tax, the combined total tax on a Chicago car rental is 27.2 percent, or $68.00 on a $250 5-day rental.

After Chicago, they add, “Seattle, Washington (24.8 percent); Denver, Colorado (23.9 percent); Minneapolis, Minnesota (23.3 percent); and Colorado Springs, Colorado (21.9 percent), tax rental cars most heavily.”

The cheapest place to rent a car, tax-wise, is Cincinnati, Ohio, where levies add up to 6.5 percent. Detroit, Michigan, and Columbus, Ohio, come in next at 8 percent.

But local authorities, like those that operate airports, also impose taxes and fees. These can overshadow state and city taxes, making it smart to leave airport property before picking up a car.

“In nearly every case we examined, airport fees exceeded the combined taxes charged on a rental contract,” add Hoffer and Macumber-Rosin. “The largest total airport fee is charged at Newark Liberty International, at 40.67 percent—over $101 on a $250 car rental.”

Those fees are usually justified as funding airport operations. But in 2014, The Wall Street Journal‘s Heather Haddon reported that “a tax on travelers who rent cars at Newark Liberty International Airport is helping to fund an animal shelter, a park and a jobs program in New Jersey’s largest city.” She added that “rental car companies, tax groups and travelers associations say the taxes unfairly tap people who don’t live in a locality to pay for services that benefit others.”

Newark airport’s take is the largest in the country, but it doesn’t stand alone. The lowest fees, at 11.11 percent, are at St. Louis Lambert International Airport and Orange County, California’s John Wayne Airport. Those fees are added on top of state and municipal taxes to deliver a surprise to travelers who haven’t yet learned that quoted car rental prices are often just a vague wave in the general direction of the final bill.

“The combined total burden from state and local taxes, airport fees, and other fees on car rentals is more than 25 percent of the sample transaction in every major city we examined, and is more than 50 percent in 5 cities,” comment Hoffer and Macumber-Rosin.

Newark’s combined tax and fee burden on car rentals is 63.8 percent. Denver comes in at 55.44 percent, Chicago at 54.06 percent, and Seattle at 53.32 percent.

The lowest tax and fee combination found in the study is 25.08 percent in Anaheim, California. St. Louis, Missouri, follows at 26.49 percent, with Tucson, Arizona, at 28.29 percent.

Rental companies are aware of the burdens that taxes and fees pile on travelers and how they can come as a rude shock to customers expecting one price and paying another. Hertz, one of the car rental giants, warns on its website that “car rental tax differs from state to state” and that “basing your budget on the base rate alone can be misleading as not all providers include rental taxes and fees in this total.” The company urges renters to share their itineraries with the company so “you’ll easily see how the total cost is worked out, including any extra fees and car rental taxes.”

Hertz doesn’t mention its staff’s impressive ability to detect expensive damage on returned vehicles that’s invisible to the human eye.

And, of course, plenty of people still get slammed by unexpected taxes and fees. The fact is that most renters have little sway with tax-imposing authorities in a place they’re just visiting. The most they can do is avoid renting a vehicle in the most avaricious locales in favor of traveling elsewhere.

Travelers are also considered fair game for lodging taxes, which can make hotel room rates just as much a guessing game as those of rental cars.

“A growing number of US destinations are lifting their hotel tax—often called a bed tax, tourist tax or occupancy tax—adding double-digit percentages and nightly fees to room bills,” Hotel Management‘s Mohamed Dabo reported last November. “Industry research suggests the average lodging levy in the US is now above 15%.”

Hoffer and Macumber-Rosin urge that rather than “trying to export the tax burden to nonresidents, municipalities should enact principled, neutral transportation tax policy that is unlikely to discourage visitors, tourists, and other economic activity.” But so long as travelers have limited means to punish tax-hungry officials in places they visit, they’re unlikely to enjoy anything like a tax holiday. Keep that in mind as you plan your trips.