DallasNews.com | News for Dallas, Texas | Business Columnist Robert Dodge
DallasNews.com | News for Dallas, Texas | Business Columnist Robert Dodge
Car rentals toting large tax burden
11:11 PM CST on Sunday, November 14, 2004
By Robert Dodge / The Dallas Morning News
WASHINGTON – When Sumeet Sagoo was offered a rental car while his Volkswagen Golf was being serviced, he thought his auto mechanic was being especially generous.
All Mr. Sagoo had to pay was any extra fees.
"I thought they would be for upgrades if I wanted a different car," he said.
The 22-year-old economist pays attention to taxes and fees because he works at the Tax Foundation, a Washington group that opposes high tax rates.
So, Mr. Sagoo was taken aback when he returned the 2 ½ -day rental to find $33.70 was due in added fees.
"I thought it was quite steep, considering that the car had already been paid for," he said.
Increasingly, consumers like Mr. Sagoo are finding that states, municipalities, airports and other taxing authorities are adding staggering amounts of taxes and fees on rental cars.
The charges, travel experts said, are part of a trend by states and municipalities to bleed out-of-town visitors to pay for local facilities, such as convention centers and sports stadiums. Stated another way: Taxes are being levied on business and vacation travelers who never get to vote for the lawmakers who make the policies.
"The people who are funding it are not the ones voting on it," said Neil Abrams, principal of the Abrams Consulting Group, which advises the auto rental industry.
Last year, the online reservations company Travelocity found that the average amount of taxes and fees added to the cost of renting a car is 24 percent nationwide.
"This can really be a shock for consumers when they get to the car rental counter," said Tracey Weber, a vice president at Travelocity, a unit of Southlake-based Sabre Holdings Corp.
And the rates at many airports exceed the national average. In fact, Texas – which boasts it's business friendly and low-tax – has three airports with the highest taxes and fees nationwide: George Bush Intercontinental Airport in Houston, Dallas/Fort Worth International Airport and the Austin-Bergstrom International Airport.
A recent search on the Travelocity Web site showed a family traveling to Houston through Bush Intercontinental for Thanksgiving could rent a full-size auto from Alamo for $59.97. But the three-day rental totals $95.84 – after taxes and fees are added.
Other cities with the highest rates include Cleveland, Kansas City, Phoenix, El Paso, San Antonio and Albuquerque. A family traveling to New Mexico for the holiday weekend could get a full-size Alamo rental for just $76.98 – until $29.49 in taxes are added.
Adding up
The fees add up for the states. For instance, Utah reports to citizens that mostly out-of-state renters contributed $12.4 million to state coffers in 2002, up 137 percent since 1997.
Popular among some cities are fees added to pay for local sports facilities. For instance, Arlington residents voted this month to raise their auto rental tax a whopping 5 percentage points to help finance a $650 million stadium for the Dallas Cowboys, even though many auto renters will never attend a game at the new facility.
Customers often pay taxes to cover the rent that auto companies pay the airports. But now, they are being asked to pay additional fees to finance rental centers shared by all the auto companies.
At D/FW, renters pay an 11 percent concession fee, which covers rent paid by the auto companies. Additionally, customers are charged $4 a day to pay off the bonds used to finance the rental center – even though travelers use the facility only on the days they pick up and return the car.
Other airports such as Albuquerque, which charges $2.05 daily, have built similar facilities.
Representatives from Avis, Hertz and Alamo all turned down requests to be interviewed. That may be because the car companies are complicit in setting some of the fees. For instance, they often are at the table when airports decide who will pay for the new rental facilities.
Change coming?
Airline officials are bewildered. They find it nearly impossible to raise fares on bargain-hunting travelers to pay for airport security and higher fuel costs, yet auto rental fees seem easily passed along to consumers.
That may be changing. Travelocity's Ms. Weber says consumers are starting to complain. Their concerns prompted Travelocity to add a feature to its Web site that allows shoppers to tally all the taxes and fees before renting, a feature copied by competing Web sites.
Ms. Weber acknowledges consumers may be better informed but have few options for escaping the costs. One strategy: If time permits, consider renting your auto from a vendor located off the airport property.
"With a total price view," she said, "they can look more broadly at their options."
