NACo and other local government groups submitted joint testimony opposing H.R. 2469, the End Discriminatory State Taxes for Automobile Renters Act of 2011, at a House subcommittee hearing Feb. 1.
The bill would preempt state and local taxing authority by prohibiting states or local governments from levying or collecting a discriminatory tax on the rental of motor vehicles, motor vehicle rental business or motor vehicle rental property.
A discriminatory tax is defined as a tax or tax assessment that is applicable to the rental of motor vehicles or motor vehicle businesses or property, but not to the majority of other rentals of tangible personal property within a state or locality.
Ray Warren, deputy revenue commissioner, Arlington County, Va. represented the local governments. The remaining witnesses of the four-person panel all represented consumer advocate groups who spoke in support of the bill.
Warren noted several reasons why the legislation could not be supported by local governments. For example, he pointed to how the bill’s definition of a discriminatory tax is vague and could lead to a myriad of interpretations since the bill assigns federal courts with the responsibility of determining whether a jurisdiction’s car rental tax violates the act.
Furthermore, the bill determines that a tax is “discriminatory” by comparing it to other items or businesses subject to tax, without evidence of the differences that may exist in those items or businesses. But above all, the determination does not take into account the fact that state and local policymakers use a number of factors to evaluate local needs and the best manner to distribute the local tax burden, a process that inherently results in differences in how various activities and items are taxed.
Although H.R. 2469 would not apply to taxes already in place, it could prohibit state or local governments from raising rental taxes in the future, opening the door to an erosion of state and local taxing authority. And as Warren noted, this erosion of authority would encroach on the long-standing principle of federalism and essentially create preferential tax treatment of a particular industry.
As expected, some of the same arguments from attempts in previous congressional sessions to advance similar bills were heard once again. They ranged from the disproportionate impact that car rental taxes have on low-income households to the lack of benefit received by those actually paying the taxes.
A relatively new perspective was put forth by the Sports Fans Coalition, which attempted to paint the use of tax funds for athletic facilities as a public subsidy benefitting only the wealthy owners of professional sports teams.
While the bill has support from both sides of the aisle, there are currently only seven cosponsors. Whether this bill will advance this year remains uncertain.