Taxes Undermining Car Sharing Services

By: Carlie McKeon  |  July 26, 2016

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For Americans living in large cities or for those who typically utilize public transportation and do not own a car have found solutions by hailing a ride or using a car-sharing service when they are in need of a vehicle. With varying business models to choose from, consumers are forced to weigh the advantages and disadvantages of either using mobile apps to hail a ride or utilizing a car-sharing service.

Apps such as Uber and Lyft are essentially a cheaper taxi service. A rider will use the app to inform drivers that they are in need of a ride. Drivers will then come directly to their location, pick up the rider, and take them to their desired destination.

Car-sharing is a bit different. A car-sharing service allows customers to drive themselves by essentially renting a car owned by someone else. Even though these companies provide the same “service” (transporting those to a desired destination), implemented policies and taxes are benefiting the “taxi-type” services and are proving to be detrimental to car-sharing providers.

Over the last few years, cities all across the country have increased taxes on the car-sharing industry. However, this same increase in taxes does not apply to “ride-hailing” companies. A study conducted by DePaul University found that of the 40 largest cities in America, 29 “apply taxes of more than 10% on one-hour car-sharing trips, including nine cities with effective tax rates about 30 percent.”

The taxi service has tried to fight back informing policy makers that they face a “far heavier regulatory burden” in comparison to ride-hailing services. This puts car-sharing services at an unfair disadvantage. In order to make up for the added taxes, car-sharing services are forced to raise prices making ride-hailing services cheaper and more economical for riders to use.

Instead of grouping car-sharing services with ride-hailing providers, they are treated as short-terms rental cars. As such, car-sharing companies are required to pay rental-car taxes. Originally, these taxes were intended to “extract revenue from business travelers,” but instead these taxes are applied on a per-transaction basis.

To further illustrate how these taxes impact car-sharing services, DePaul released the following example: “A business traveler might barely notice a $4 tax on a $100 car rental for a multi-day trip. Someone paying $4 in tax on an $8 one-hour rental, however, is far more likely to take notice. Ride-hailing companies such as Uber Technologies Inc. and Lyft Inc. allow people to summon a car and driver, via smartphone, to take them to their destination. A short trip, such as to a nearby grocery store, might cost about $5 in each direction.”

With the final price being the ultimate determining factor in the decision-making process for riders, the car-sharing industry will continue to see a decline in profit if the taxes continue to apply.

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