Rental car companies attempt to manipulate tax policy, drive up competitors’ costs

Editor’s Note: The Bluegrass Beacon is a weekly syndicated newspaper column posted on the Bluegrass Institute’s website after being published by newspapers statewide.

Rent-seeking (adjective): “Engaging in or involving the manipulation of public policy or economic conditions as a strategy for increasing profits.” –Google’s English Dictionary

Such scheming often involves longtime players in a particular sector of the economy attempting to reduce competition by lobbying government to erect barriers that hinder new players in the marketplace.

Rental car companies, for example, are seeking to weaponize Kentucky’s tax policy to discourage competition beginning to arise from peer-to-peer car sharing services, a growing service that empowers people to rent out their personal vehicle that might otherwise sit idle in the driveway.

Ironically, some travelers are turning to these services because of the lack of readily available reservations from the car rental chains – a situation exacerbated and highlighted by the pandemic.

How’s their rent-seeking playing out in Frankfort?

Laws passed years ago allow rental car companies the option of paying the state’s 6% vehicle motor usage tax themselves or passing it on to their customers.

Not surprisingly, the rental firms have chosen to stick customers with the bill by tacking a 6% tax onto the cost of renting a car.

Like all Kentuckians, peer-to-peer entrepreneurs pay the 6% motor vehicle usage tax on the purchase price of their vehicle when titling it at the county clerk’s office.

The rental car companies are asking the General Assembly to attach another 6% tax on drivers using peer-to-peer services.

It’s a clear case of double taxation and one that the rental car companies have been given the option of avoiding.

If it’s tax parity they’re after, they can always choose to pay the motor vehicle usage tax themselves, thus sparing their customers the extra expense.

We’ve seen similar scenarios before.

Taxi companies fought tooth and nail to keep Uber and Lyft from getting a foothold in the state.

Policymakers recognized ride-sharing services were an emerging part of the economy and adopted reasonable regulations to allow drivers to provide a safe – yet competitively priced – alternative to taxis.

In a recent policy brief, Bluegrass Institute Visiting Policy Fellow Andrew McNeill urges a smart approach that offers Kentuckians the benefit of choice and competition while also protecting consumers.

There appears to be broad legislative support for appropriately regulating the emerging industry.

However, the rental car companies and their lobbyists are attempting to hijack the process in order to inappropriately impose a new tax on peer-to-peer entrepreneurs.

This is the kind of nonsense that discourages entrepreneurship and diminishes economic freedom.

Kentucky needs more small businesspeople taking risks and enjoying success.

McNeill argues the General Assembly should do everything it can to promote such entrepreneurship, “not suppress it with more red tape, duplicative regulation and punitive taxation.”

In an earlier report showing how Kentucky lags behind its competitor states in key economic categories, McNeill lays out a three-part test to determine whether a proposed tax policy will help drive or diminish economic growth and opportunity:

• Are the tax changes revenue neutral (at a minimum) and, therefore, won’t increase the overall tax burden on Kentuckians?

• Do the tax changes favor taxing consumption over income, savings and investment?

• Do the tax changes favor individuals and entrepreneurs over narrow special interests?

Along with showing how the proposal to double-tax peer-to-peer services violates most pro-growth principles, McNeill says past decisions to reward such rent-seeking behavior have contributed to Kentucky’s diminishing competitiveness over several decades.

Instead of engaging in harmful tax policies, Kentucky policymakers should encourage innovation and competition that will result in racking up the kind of “wins” that “will turn the tide towards greater prosperity in Kentucky over the long run.”

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free market think tank. Reach him at jwaters@freedomkentucky.com and @bipps on Twitter.