IRS attorneys report that an unpublished study from DePaul University indicates car sharing services pay an unfair amount of taxes. These IRS tax lawyers say the study suggests many car-sharing reservation periods last less than an hour, and yet the car-sharing transactions are typically taxed at more than double the prevailing sales tax rates. In fact, IRS tax attorneys familiar with the study say that in 7 of the 25 largest cities, the tax rate for one hour reservations were over 30%.
According to the DePaul University report, the number of Americans participating in car-sharing membership is up in 2011 (approximately 15%) as compared with 2010. In some states, car-sharing members are taxed on a per transaction basis. IRS attorneys point to states like New Jersey which charges $5 per transaction, even though the member may have only used the car for half an hour.
IRS tax lawyers maintain that taxing car-sharing transactions which are less than 24 hours, undermines the public policy to encourage fewer cars on the road, and frustrates the government’s efforts to cut spending on road repairs, parking, and safety services (i.e. traffic enforcement). If fact, some IRS attorneys note that a few States have finally started to get it right. In Chicago, for example, the City now exempts car-sharing reservations which are less than 24 hours from its 8% personal property lease transaction tax. And in the City of Boston, a $10 transaction fee is applied only to the first car-sharing reservation in a member’s annual contract.
Of course, car rental companies which don’t offer a car-sharing alternative (Avis and Budget) take the position that car-sharing is nothing more than a car rental for a shorter time period and should be taxed comparably to any other car rental. Alternatively, companies like Enterprise, which does offer car-sharing options through its WeCar company, assert any car rental excise taxes are just plain wrong.
IRS tax attorneys contend that while posturing by car rental companies expectedly track with what’s in their best financial interests, the public is better served by not singling out a class of conscientious consumers who are contributing to a greener alternative and saving the government’s money and resources. Other experts agree as well. Take Roland Hwang, the Transportation Program Director at the Natural Resources Defense Council who claims “It’s penny-wise, pound-foolish to tax car sharing…”
With increasing usage of car-sharing reservations across the United States, many IRS attorneys say it is wiser for the government to encourage such alternatives rather than to tax those options out of business. After all, aren’t we trying to reduce the number of vehicles on the road for several good reasons? And if so, then why does it make sense for the government to impose taxes which defeats the purpose?
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