A few years back, urban neighborhoods saw an influx of parking lots dedicated to car-share companies such as Zipcar, Car2Go and Enterprise CarShare. The idea was that city dwellers, who are less likely to have or need a car due to walkable neighborhoods and public transportation, could rent out the cars for an hour or two to run errands or haul cargo.

But a DePaul University study found that these car-sharing services have failed to catch on, likely because of car rental taxes not designed for the sharing economy and the rapid expansion of Uber and Lyft.

Nine of the country’s 40 largest cities impose a tax that increases the cost of a one hour car-share ride by more than 30 percent, while 29 of these cities increase the cost by 10 percent, DePaul researchers Joseph Schwieterman and Heather Spray report in their study “When Sharing is Taxing.” Average tax rates rose from 15.6 percent in 2011 to 17.0 percent in 2016, higher than the average tax on hotels and airline tickets, and far higher than the average taxes imposed on Uber and Lyft (if any tax is imposed at all).

For example, in Chicago, where 27.9 percent of households are car-free, the tax rate on car-share is 21.2 percent (higher than New York, and more than double tax rates in Boston, Washington DC and San Francisco). Chicago also had the highest increase in taxes on one hour car rentals in the country, growing 9.2 percent from 2011 to 2016.

While Uber and Lyft rides continue to climb, research out of the University of California-Berkeley shows the number of car-sharing vehicles in the US decreased from 19,115 in mid-2014 to 16,754 by early 2015.

“The tax burden facing people who car-share is a case of unintended consequences,” said Schwieterman, lead researcher and director of the Chaddick Institute for Metropolitan Development at DePaul University in a release. “No one expected that these taxes, which were added years ago to car rentals, would suddenly apply to thousands of people who merely want to use a car for a quick neighborhood trip.”

The biggest issue is that car-sharing companies face the same tax as car rentals, the study says, but are used for very different purposes. Car-share companies were launched for people to drive to the grocery or hardware store, and haul back loads that would be cumbersome on foot. Car rentals tend to be for business travelers or vacationers, who rent out cars for day-long trips. 

In Chicago, where 27.9% of households are car-free, the tax rate on car-share is 21.2%

Despite this, in addition to the taxes outline above, many cities include up to a $4 transaction fee for any sort of car rental. And $4 added to an $8 car-share ride is much more noticeable than $4 on a $100 car rental bill, the Wall Street Journal points out.

“Without taxes, the car sharing is cheaper,” WSJ reporter Josh Zumbrun wrote. “With taxes, the ride-hailing [such as Uber or Lyft] is cheaper.”

Though this could also be chalked up to a business model that doesn’t cater to consumers who prefer on-demand over membership (Zipcar requires a monthly membership fee, for example), a higher tax rate on short term car rentals has implications beyond car-sharing, researchers point out. The tax rate disincentives environmentally-conscious electric car-share, and brings into question whether short-term self-driving car rental would be taxed the same.

“The current structure of taxation works against a technology that many municipalities otherwise seek to embrace,” the researchers write.

Here’s more on how Chicago stacks up:

(Credit: DePaul University)
(Credit: DePaul University)