Proposed legislation in the Michigan House could halt a promising new side hustle for those who own cars they don’t need to drive every day, and are willing to rent them to others.
New car-sharing apps are a burgeoning alternative to large rental companies. The proposed laws would stall them by further taxing owners who’ve already paid the state taxes on their vehicles.
Critics of the bills say rental companies have noticed that those who use apps that connect car owners with others who want to rent them short-term aren’t paying the same fees and taxes as conventional rental car companies. They’re crying unfair competition.
Legislators must be careful they don’t overreact and stifle innovation.
Rather than raising taxes on entrepreneurs, a better approach would be to reduce the overall tax burden for consumers of rental vehicles.
Apps such as Turo or GetAround work like AirBnB, the home rental service. Owners can rent out vehicles while they’re not using them. But unlike rental companies, their customers don’t pay taxes and fees.
Instead, the owners pay the state through sales taxes and registration fees. They also must pay local, state and federal income taxes on the money they make.
Nationally, rental companies like Enterprise have targeted the car-sharing apps as enjoying an unfair advantage. They have a point that taxes on conventional rental vehicles are oppressive.
Of the 44 states that levy excise taxes on rentals, Michigan ties with five others for 18th highest, according to an analysis by the Tax Foundation. Michigan charges a 6% excise tax on car rentals.
When combined with other levies, rental car taxes and fees can make up 30% of the cost to rent a car, the analysis found. On the other hand, rental companies don’t pay the 6% sales tax when purchasing new cars, like consumers do.
Romulus resident and car-sharer Keaton Hall is one of those who would be impacted by the possible tax increase. He says he probably wouldn’t have done Turo if he knew new taxes were headed his way.
“Right now, I’m already taking the tax,” Hall says. “I’m taking the tax from the state; I’m taking Turo’s tax. On top of that, I still have the car note and the insurance on the car.”
Americans for Tax Reform targeted the bills in a letter sent to Michigan representatives, calling the proposals a “tax hike” that would stifle innovation and the flexibility of the market.
James Hohman, director of fiscal policy at the Mackinac Center for Public Policy, says the state should let the new industry develop without unfair burdens. Turo’s own estimates show average participants earn $10,000 a year, before expenses.
Those who share their cars are already paying the state a fair amount in taxes and fees. An additional levy is unfair, and would risk killing a good opportunity for private citizens looking for a little extra cash.