Car rental or share? Difference could mean a tax break in Minnesota

Some neighborhood-based car-sharing services are asking the Legislature for an exemption from Minnesota's car rental taxes. But the idea has run into resistance — from other rental companies.

Minnesota's taxes and fees on car rentals can exceed 20 percent, even more on cars picked up at the airport. Car-sharing services pay the same taxes, although they argue that they serve a different market. HourCar, Car2go and ZipCar cater to people who need temporary transportation to run errands, commute to work or go places not easily served by other transit options.

Car2go recently pulled out of the Twin Cities market, citing high rental taxes. That led to a bill from state Sen. Scott Dibble, DFL-Minneapolis to shield such services from the state's 9.2 percent rental tax and a separate 5 percent rental fee. Only the standard sales tax would still apply.

"I'm interested in folks in our community who need a car for an hour, a couple of hours," Dibble said. "I think that is a different sort of service than the more-traditional, multi-day rental car."

Dibble's bill cleared the Taxes Committee on a voice vote and heads next to a Senate transportation panel. But lobbyists representing traditional car rental firms have vowed to fight it. A companion bill has yet to advance in the Minnesota House.

Car2go stopped serving Minneapolis and St. Paul at the end of last year, taking its 400 vehicles with it and leaving 29,000 members to pursue other options. Unlike a rental car company, members paid a sign-up fee. The company had varied pricing, 41 cents a minute or $10 an hour or a daily rate between $59 and $79. That covered insurance, parking and maintenance costs.

The potential tax break appeals to car share lovers like Minneapolis resident Paul Stewart. He told the Senate Taxes Committee Wednesday it's a vital alternative to personal car ownership. One by one, Stewart pulled out his transit passes, a key to a public bike locker and proof of the various car services he belongs to, including Car2go. He sold his car in 2009 but joked that his wife lets him use her car for errands.

Traditional rental car companies, however, have lined up against the break for ride share services, arguing it gives those services a competitive advantage.

"Car sharing really is car rental. It's just a different term," said, McKenzie Spalding, who represents the Enterprise group, which also includes the Alamo car rental chain. Sticker shock from rental taxes and fees isn't unique to car-sharing services, she added.

"We believe a rental is a rental, regardless of how long the vehicle is rented or the use of the vehicle. And all of the customers should feel this relief, not just one segment of the rental customer base."