As the Texas Legislature continues a session centered on spending money, they’re also seeking “additional sources of revenue”—a technical term for pulling more cash out of taxpayers’ wallets.
So far they’ve proposed applying the state’s sales tax to additional goods and services, raising the rate, and hiking fees to attempt to pay for their spending spree.
Their latest target? Peer-to-peer carsharing companies.
The premise behind peer-to-peer carsharing is simple: Individuals who own their own cars can put them on these companies’ platforms to connect with people who want to rent them while the owner isn’t using them (think AirBnB for cars). And as is the case with other disruptive technology-based businesses like Uber, AirBnB, and others, legislators are currently grappling with how to regulate and tax the new service.
The bill currently moving is House Bill 2872 by House Ways & Means Committee Chairman Dustin Burrows (R–Lubbock) which has been billed by traditional rental car companies such as Enterprise and Hertz as legislation to “level the playing field.”
In truth, the proposal appears to levy a hefty and unlevel tax on peer-to-peer carsharing. Indeed, taxpayers should be concerned with Burrows’ legislation and the big boys of the traditional rental car industry who are pushing it.
Currently, traditional rental car companies enjoy a huge tax break when they buy cars. Under Texas law, they’re exempt from the motor vehicle sales tax—a significant benefit to their bottom line.
To recoup these revenues, the state created an extremely high excise tax on the rental of a car in Texas called the gross rental receipts tax, which hits every renter for 10 percent on their transaction. That’s over and above the state’s sales tax at 6.25 percent.
This higher tax is justified by lawmakers who note a significant majority of rental cars in Texas are rented by out-of-state individuals who don’t contribute as much in taxes to pay for the wear and tear they cause on the road. Others say, however, that the tax is higher simply because they can get away with it.
It is this higher tax that traditional rental car companies and Burrows want to apply to carsharing companies like Turo, Getaround, and HyreCar.
The carsharing companies’ argument is that they don’t own any cars—their users do. According to them, they’re merely a networking company that connects prospective car renters and prospective car loaners for a small fee.
Because they’re only offering a service, they say they should only be charged the standard 6.25 percent sales tax. Besides, they argue, each of their car loaners paid the motor vehicle sales tax at the time they purchased their car—something the traditional rental car companies didn’t do.
While pitched as an effort to level the playing field, House Bill 2872 appears to subject more companies to a poorly designed framework that favors entrenched business interests and protects them from competition.
Rather than applying new regulations to new entrants, the Texas Legislature should be focused on easing the burdens on businesses and allowing consumers to choose which providers thrive.