There’s a spirited fight coming to a state legislature or an airport near you. It’s between firms like Turo and traditional car rental companies. The new kids on the block claim their established rivals are trying to kill peer-to-peer car sharing companies by regulating them. Christopher Elliott, a consumer advocate waded into the dispute recently with two interviews, one with Greg Scott, the government relations representative for the American Car Rental Association (ACRA), the car rental industry’s trade group; and the other, with Michelle Peacock, Turo’s vice president of government relations.
What’s at stake in this conflict? Peer-to-peer car sharing companies like Turo say they host a platform that connects vehicle owners with people who want to rent a car. Turo says it gives travelers more choice and allows car owners to take an idle, depreciating asset and turn it into “an earnings engine.” It claims the car rental industry is trying to stifle an up-and-coming competitor before it can get out of the gate.
Car rental companies deny that. They suggest companies like Turo sometimes hurt consumers by providing substandard, unregulated services and by failing to pay their fair share of taxes. The established rental companies believe peer-to-peer car sharing start-ups aren’t helping consumers, just themselves. You be the judge…
Here’s his interview with ACRA’s Scott:
Turo implied car rental companies are trying to kill peer-to-peer car sharing companies. Are they?
Absolutely not. ACRA’s members are innovative, and if there is a different way to rent a car to consumers that responds to consumer demand, ACRA members have shown for decades that they’re likely to be at the forefront of meeting that demand.
What we’ve been saying about peer-to-peer car rental companies is, in essence, if you are renting a car for profit to a member of the public, you are a car rental company. If a peer-to-peer company is in the car rental business, then it must abide by the safety, insurance and tax laws that federal and state legislators and regulators have adopted to regulate car rental companies.
Peer-to-peer car sharing companies say they are providing a platform, but that they are not rental companies. So what are they?
I understand that they say they are not car rental companies. But they are renting cars. They are profiting from renting cars. And they are renting cars to consumers. The argument that these companies are simply facilitators didn’t work for Airbnb and Uber, and it won’t work for the peer-to-peer car rental companies. If somebody is renting a car, they deserve a certain level of assurance, in terms of safety, rate disclosure, insurance coverage, and other issues. Right now, with peer-to-peer sharing companies, they don’t have those assurances.
Since you mentioned consumer protection, let me ask the question: What’s in this for customers?
There’s a federal law that says a car rental company can’t rent a car to a customer — or even sell a car from its fleet – that has an open federal safety recall. Peer-to-peer car rental customers don’t comply with this federal consumer protection mandate. I could go to a peer-to-peer car rental site today and rent a car that has a recalled airbag, a cruise control function that doesn’t work properly, or a faulty ignition switch that might catch fire, and that wouldn’t be disclosed to me when I made the reservation with one of these companies or when I picked up the car. The consumer wouldn’t know about it.
Also, there’s transparency of pricing. A consumer is entitled to a “walk-out” price when they go on a car rental site – including not just the daily rental rate but also all the fees, taxes, and any other charges associated with that rental. There’s no such requirement for a peer-to-peer car rental company. There’s more potential for a bait-and-switch – a risk for consumers that doesn’t occur with ACRA members, which are required to provide consumers with a fully transparent and inclusive set of charges for the rental.
Finally, there’s insurance. Who is liable when something happens? In every state across the nation, there are laws that govern insurance for car rental companies. It’s settled law. Does a renter’s personal insurance policy cover an accident if the renter is at fault? Or does the car rental company take “primary” responsibility? In every state, this question has been answered with respect to car rental transactions – so a renter knows his or her risks and exposures. If there’s an accident in a peer-to-peer rental car, whether you’re the driver or you’re the person hurt, or if you’re the owner — it’s the wild west out there. That’s a bad thing for consumers. People should know what their risks are when they rent a car so that they can make an informed buying – or renting — decision.
There’s a big debate about taxes, too. Peer-to-peer car sharing companies don’t have to pay many of the taxes that car rental companies do. Why should consumers care about that?
State and local taxes support many public services across the nation – road construction, schools, and law enforcement, as well as funding projects supported by a state’s elected representatives. When a business – be it a car rental company or a hot dog vendor – wants to do business at an airport, the airport requires that business to sign a contract and pay the airport for the right to do business at the airport.
Peer-to-peer car rental companies say they are not car rental companies, so they say that all of the taxes imposed on car rental companies and our customers should not be paid by the peer-to-peer companies. They advertise that they will pick you up at an airport, but they don’t think they should have to pay the fees that other vendors do to do business at that airport. ACRA’s members – and many state and local governments and airport authorities — disagree with that. Peer-to-peer car rental companies should comply with the same rules and regulations with respect to taxes, fees, and airport concession charges that other car rental companies are expected to do.
Should peer-to-peer car sharing companies pay sales taxes?
We should apply the same state tax rules to the same transactions. In some states, but by no means all, any piece of equipment bought for business purposes is not taxed at the time of the first sale. The policy behind it is that as that piece of equipment is being used, there will be a tax paid later as that equipment is used and when it is sold.
But if a Turo owner paid sales taxes on the purchase and sales tax on the rental transaction, aren’t they getting taxed more than a car rental company?
In some states, a car rental company does not pay a sales tax when it purchases a new car, but pays sales taxes on each rental and then again pays a sales tax when the rental car is sold from its fleet. In those states, if a peer-to-peer rental car is purchased purely for business purposes, the same rules would apply. If, on the other hand, that car was purchased for personal use and used for business on a part-time basis, then most states require a sales tax to be paid when the new car is purchased and on the rental transactions when owned for personal use.
However, unlike a rental car purchased by a business, an individual that purchased the vehicle for personal use does not pay a sales tax when he or she sells the vehicle. So, while this is a complicated topic, at the end of the day the sales tax burden on a car purchased for a business purpose and a car purchased for personal use are equal in most states.
Also, sales taxes are not the only taxes states and local governments impose on car rental transactions. There are also special car rental taxes and airport concession fees that ACRA members pay that peer-to-peer car rental companies avoid. All companies that rent a vehicle to a consumer for profit should pay the same taxes fees and airport concession charges.
I’d like to ask you about safety. You seem to be suggesting peer-to-peer companies are renting unsafe cars? Do you have any statistics on that?
I don’t have any statistics. I don’t think anyone has done an investigation. We do know that 10 percent of the vehicles in use in American today have an open, unrepaired safety recall. If the fleets of peer-to-peer car rental companies are typical, that means that 10 percent of their rentals have unaddressed and undisclosed federal safety recalls. With respect to ACRA members, you can’t rent a car to a customer in the United States today with an open recall. That is not the case for peer-to-peer companies, and their customers should know that.
Before an individual or a business lists a car on a peer-to-peer car rental site, do they show you the annual state safety inspection certificate? No, they don’t. When you show up at the airport, you have a choice of taking a car that’s presented to you by the peer-to-peer company or being stranded.
If someone opens an Internet café, and they serve food and alcohol, do they still have to abide by food safety regulations, have a liquor license, and pay sales taxes on the purchases made by their customers? Of course, they do. Peer-to-peer car rental companies should be no different.
It sounds like you’re saying peer-to-peer car sharing companies have built their businesses around avoiding regulation. Would that be an overstatement?
For decades, an entire suite of regulations has developed around the business of renting a vehicle. The peer-to-peer companies say none of these regulations apply to them. They’re renting cars for profit to consumers. They should abide by the same rules when it comes to safety, insurance, recalls, liability and taxes. They have yet to come up with a good reason for why they shouldn’t do any of these things.
Are there any issues on which you’re aligned with peer-to-peer car sharing companies?
ACRA has invited the peer-to-peer car rental companies to join ACRA as regular members – meaning a car rental company. To date, no peer-to-peer company has accepted this offer. To the extent that peer-to-peer car rental companies have identified a new demand from consumers, that is positive. I suspect ACRA’s members are examining whether the peer-to-peer companies have truly identified a new demand from consumers or are simply competing based on avoiding existing car rental safety and tax mandates.
Competition is good. Innovation is good. Having new ideas come into an industry is almost always good. But even new entrants into an industry – any industry — need to follow the laws that the federal and state governments have enacted with respect to that industry.
Turo Responds
Here’s Elliott’s interview with Turo’s Peacock:
The car rental industry says you are a car rental company. Are you?
Turo’s mission is to put the world’s more than 1 billion cars to better use by allowing car owners to share their otherwise idle asset and offset the high cost of car ownership. Although it doesn’t own a fleet of cars and it is not a rental car company, Turo threatens the conventional rental car model.
Rather than innovate themselves, rental car companies have sought to legislate Turo and other peer-to-peer car sharing programs out of business, putting their own entrenched interests ahead of consumer choice and environmental responsibility.
Since we are not a rental car company, existing rental car regulations don’t apply to Turo. However, we are more than happy to have a direct and forthright conversation with any legislative body about how to appropriately regulate peer-to-peer car sharing.
If you’re not a car rental company, then what are you?
Lawmakers, academics, the credit card industry, and the insurance industry all treat the peer-to-peer car sharing industry distinctly from the rental car industry. The four states of California, Oregon, Washington, and Maryland that have legislation addressing peer-to-peer car sharing all recognize it as distinct from the rental car industry.
Similarly, credit card companies and personal insurance providers that offer protections to rental car companies’ customers regularly deny such coverage to Turo community members explicitly because Turo is not a rental car company. And the United States Department of Transportation has stated that “peer-to-peer car-sharing” programs are distinct from rental car companies.
The car rental industry has suggested that some of your cars may be unsafe. Can I rent a recalled vehicle through Turo?
Turo takes the safety of our customers seriously and strictly prohibits the sharing of cars with open safety recalls. Our terms of service require that all car owner hosts regularly check their vehicle for any defects in its operations or safety. Our vehicles have to be in safe and roadworthy condition, in good mechanical condition, and in full compliance with all applicable inspection and registration requirements.
In addition, Turo proposed legislation in both Maryland and California to specifically create new regulations on this issue. Both of these states recognize the challenges of addressing safety recalls when the platform does not receive the recall notice directly from the car manufacturer the way the rental car industry does. The car rental industry opposed both the California and Maryland legislation.
What about price transparency? Car rental companies say you don’t have to tell the truth about your prices.
Unlike the rental car industry, which passes undisclosed fees to their customers in order to increase the profitability of their business, peer-to-peer car sharing is conducted online and is wholly transparent. Customers are presented with the total cost of the car in advance. Also, unlike the rental car industry, there is no way to aggressively upsell customers wishing to share cars on Turo. Federal and state law in the US and around the world prohibit deceiving customers about costs — those laws apply to every company, and unlike the rental car industry, Turo has never violated them.
How about insurance? Are consumers protected when they share a car on Turo?
Laws exist to protect consumers when businesses don’t. Extensive rental car insurance laws exist because the rental car companies had to be forced by law to protect their customers, and to this day only provide the barest minimum of protection required by law.
Turo goes above and beyond in protecting customers by ensuring car owner hosts receive with up to $1 million in liability protection from Liberty Mutual. We established this practice before a single car was listed on the Turo website. We didn’t wait until a law required us to do so, we knew it was the right thing to do from the beginning.
Shouldn’t there be a level playing field when it comes to taxes?
When the rental car industry no longer drains $3 billion a year from state coffers through their massive tax exemption on the purchase of cars, there can be a legitimate and comparative discussion on taxes.
With this $3 billion tax break in mind, ACRA’s argument about fairness is absurd. Turo’s customers should not be subject to rental car taxes because they’re not rental car companies who can avail themselves of billions in tax breaks, corporate tax exemptions, exemptions from capital gains on the sale of cars, et cetera. We have stated repeatedly that we are willing to discuss a proper tax structure with any state interested in doing so.
Was Turo created to exploit a tax and regulation loophole?
Turo identified a need and created a marketplace to maximize the utilization of the more than 1 billion cars on the planet that sit still nearly 23 hours a day. We are proud of our policies and protections that create a safe sharing experience for our customers.
We are in compliance with existing regulations in California, Maryland, Washington and Oregon that specifically address peer-to-peer car sharing. Turo has actively worked to create additional regulations on peer-to-peer car sharing, but the rental car industry strongly opposed our efforts at every turn. ACRA’s rhetoric about Turo is false and rooted in their fear of competition.
Well readers, what do you think? Did these professional advocates make their case? Should car sharing companies be regulated and taxed like a traditional car rental firm? Feel free to comment below…
