Car Rental Tax (Put It on the Travelers!)

 Photo Credit: https://www.mansionglobal.com/articles/which-u-s-states-charge-property-taxes-for-cars-220298

Almost everyone that has traveled in the US (and often outside the US) has been involved in using a rental car for transportation.  But how often have we examined the rental car billing and been aware of the often-huge amount that is paid in the excise tax for rental of the vehicle?

The Tax Foundation, a non-profit entity, recently issued a very interesting study on the amount of rental car taxes paid in the states throughout the US.

Please, take a guess.  Then look at what the rental car taxes are in the states where you often rent a car.  (See the Tax Foundation study at the end of this note.)

For example, here are a few of the taxes that are paid in this rental setting, based on the Tax Foundation study, looking to an average state and local percentage tax for a $250 car rental for 5 days.

The “winner” for the highest average tax on the car rental is Minnesota, with a rate of 22.5%! Colorado is next in line, with a rate of 21.5%, followed closely by NY at 20.5% and Arkansas at 19.5%.

On the low side, the average tax in the setting noted was in Delaware at 2%, followed by Alabama at 3.2%.

There are other differences among the states as to this issue.  For example, Oregon does not have a state car rental tax; however, the local authorities averaged tax of about 4.6%, per the Tax Foundation study.

How the revenue is employed once the rental tax is assessed varies among states. 

In many instances, these car rental taxes effectively shift the tax burden off  the residents and on to the visitor in the given state.  Of course, if the funding collected is employed to build and maintain the highways in the state, many would argue that placing the car rental tax on visitors is a reasonable approach to assess such highway use on the visitors.

Whatever the conclusion, it is interesting to see the amount of tax burden from car rentals and how such collected funds are employed.

For more on this area and to see the taxes collected in your state of residency, see the Tax Foundation study.  Rental Car Taxes by State, 2025

By Dr. Mark Lee Levine, Professor, University of Denver