Car-sharing services want a vehicle tax removed. Is that fair?

HOURCAR claims that taxes are driving customers away.

The St. Paul-based nonprofit car sharing service has 2,200 members, but its chief executive officer, Paul Schroeder, says that about a quarter of new customers leave the service after a few rides. When exiting, customers commonly say that the chief reason is discovering their rates to be much higher than expected.

Schroeder blames a 9.2 percent tax the state levies on car rentals.

A bill laid over Tuesday by the House Taxes Committee for possible omnibus bill inclusion would lift that burden from car share service users.

HF1357, sponsored by Rep. Jennifer Schultz (DFL-Duluth), would exempt car sharing services from the tax and keep them free from another 5 percent tax that car rental agencies are forced to pay.

And that doesn’t sit well with representatives from Enterprise Rent-a-Car, who see HOURCAR as a competitor gaining an unfair advantage.

The change would affect HOURCAR and other car-sharing services like ZipCar. Under HOURCAR’s business model, you can go to one of its 50 self-service hubs in Minneapolis and St. Paul and use a car for as little as 30 minutes or as much as three days. But Schroeder believes taxes are putting the brakes on his business just when it’s ready to hit the gas.

The combination of the 9.2 percent rental tax with the state’s 6.875 percent sales tax results in Minnesota’s taxes being the highest in the nation for car sharing services, according to Schroeder. He said it’s causing companies that have found success in such cities as Chicago, Seattle and Portland to stay out of the Twin Cities market, and inspired car-sharing service Car2Go to leave the state in 2016.

HOURCAR has plans to fill that void by launching a new, one-way, all-electric car sharing service in 2020, with a fleet of 150 vehicles at 70 hubs around the Twin Cities. “Half of the hubs will be located in areas of concentrated poverty with greater than 50 percent people of color,” Schroeder said. “We want to replicate what we’re doing here in Duluth, Rochester, St. Cloud and elsewhere.”

Yet Todd Hill, representing Enterprise Rent-a-Car, called the bill unfair.

“We agree with the proponents of this bill,” Hill said. “Rental car taxes in Minnesota are way too high. The airport rental car tax is now 44 percent. We lose lots of business every day to Uber and Lyft and other types of transportation because our rental car taxes are too high. ... We’d be fine if everyone had that tax break, but it doesn’t seem to us to be fair to give our competitor a tax advantage over us.”

Schultz pointed to the Department of Revenue’s projection that the exemption would cost state coffers relatively little – around $80,000 in Fiscal Year 2020 – and cited studies showing that each car share vehicle results in 9 to 13 fewer personal vehicles on the road.

The bill’s companion, SF1655, sponsored by Sen. Scott Dibble (DFL-Mpls), awaits action by the Senate Taxes Committee.

Educational materials exemption would expand under bill

Also laid over for possible inclusion in the omnibus tax bill was HF1073, sponsored by Rep. Jim Davnie (DFL-Mpls), which would expand the list of instructional materials for which a student could receive a sales tax exemption when purchasing.

Currently, the exemption only applies to textbooks and written materials or their electronic equivalent. The bill would expand the list to include charts, models, art supplies, and tools, equipment or supplies required for obtaining a degree or certification.

The bill’s companion, SF236, also sponsored by Dibble, awaits action by the Senate Taxes Committee.