Sacramento Targets Entrepreneurial Vehicle Owners with Deceptive New Tax Bill

Airport fees are a traveler’s worst nightmare. Too many fathers have doubtlessly scratched their heads at the endless line items of elaborate charges at the bottom of their bills. Concession fees, regulatory compliance fees, customer facility charges, tourism assessments, vehicle license fees – the list goes on.

Taken as a whole, these government fees can materially increase the price of one’s flight, rental car, or hotel by 50% or more. Let’s call a spade a spade – all those “fees” are little more than cleverly disguised “taxes.”

Still, faced with a shrinking population that is increasingly frustrated with new and higher taxes out of Sacramento, lawmakers are gearing up to approve a suite of new “fees” that would target the burgeoning industry of car sharing. Known as AB 893, a bill set for consideration in the state Senate this week would significantly expand government appropriations on personal vehicle owners who choose to make money by sharing their property.

The most striking concern with the bill is the fact that vehicle owners are already paying a host of taxes to the state of California. Before even driving their new car off the lot, an aspiring car owner is subject to a 7.25% state sales tax – the highest in the nation. In places where the city and county take another piece of the pie, car buyers are shelling out well over 10% in sales tax for their purchase. After that, drivers pull out their wallets yet again for annual registration fees, insurance taxes, and titling fees to pay off the government for the mere privilege of owning a vehicle.

In contrast, major rental car companies, such as Enterprise Rent a Car and Avis, do not pay a dime in sales taxes on the purchase of their vehicles. That loophole alone is worth over $750 million in industry tax savings every year in California. Special government protections do not apply to ordinary individuals who purchase their cars at a dealership or on the used car market.

Despite this reality, AB 893 would make it even more difficult for car owners to compete with major rental companies by allowing airports to impose substantive new taxes on peer-to-peer car sharing services. If enacted, airports will take advantage of an unprecedented and unfettered new authority to slap higher taxes on vehicle owners across the state.

Not only is this unfair to residents who have already paid quite a few different taxes to own their vehicles, but it is likely unconstitutional under California law, with meaningful implications for state and local tax policy.

In California, thanks to the popular Propositions 13 and 218, any new local tax must be approved by a two-thirds majority of voters. Moreover, any new “fee” must be reasonably connected, or “proportionate,” to the value or benefit conferred upon the fee-payer. Otherwise, it is considered a tax under state law and therefore subject to voter approval.

AB 893 does not directly impose fees, but rather grants authority to local airports to collect new fees from car sharing platforms. The original version of the bill specified that all of these new “fees collected shall be proportionate to the services and infrastructure utilized.” However, an August 15 amendment replaced the word “fees” with “customer facility charges.”

That small but meaningful change signals to airports that only customer facility charges, and not other fees, need to convey an equivalent benefit to a car sharing operator paying those fees. Eliminating the proportionality requirement for most airport fees would indeed violate the California Constitution and undermine taxpayer protections that have been reinforced by voters repeatedly.

It remains to be seen whether or not airports hungry for more tax dollars would take advantage of the language in AB 893 to collect unrelated fees from car sharing activities. But California’s general enthusiasm for taxing residents and their property would certainly predict that outcome. In the future, car sharing operators may be forced to pay “fees” to fund rental car facilities, terminal reconstruction, or other aspects of airport travel completely unrelated to the business of car sharing.

At the very least, AB 893 as amended would spark confusion and costly court fights over its constitutionality – paid for, of course, by the taxpayer.

The taxpayer protections within Propositions 13 and 218 are crucial elements of California tax law. Ignoring their requirement that local fees be connected to a specific benefit is risky and untimely, especially for taxpaying individuals who utilize car sharing platforms.

Car sharing is a lifeline for struggling families trying to make money on the side to stay afloat. Rather than disrupt state law to reach further into the wallets and the vehicles of Californians for a little extra cash, Sacramento should stop meddling with Californian livelihoods and reject AB 893.