Colorado rental car tax survives 10th Circuit scrutiny

Because the tax is levied against consumers and not rental companies themselves, Colorado can continue imposing a $3-per-day “congestion impact fee.”(CN) — A 10th Circuit panel upheld Colorado’s “congestion impact fee” on rental cars Monday, finding the state tax isn’t preempted by federal law forbidding taxes on airport businesses.The American Car Rental Association argued that Colorado’s daily $3 tax runs afoul of the 1973 Anti-Head Tax Act’s prohibition on taxes levied specifically against businesses in commercial airports, where the majority of Colorado’s car rentals are dispensed.A federal judge ruled for the state last year, embracing its argument that the tax is “generally imposed on sales or services” because it applies to all rental companies, not just those at airports.“We affirm for a different reason,” U.S. Circuit Judge Scott Matheson wrote in a 17-page majority opinion published Monday.“Colorado imposes the fee on consumers,” the Barack Obama appointee penned. “The AHTA prohibits a fee ‘upon any business located at a commercial service airport.’ It therefore does not apply to the fee and does not preempt the Colorado law.”Though its argument in the March appeal hearing focused on whether the tax was general or unfairly targeted airport businesses, the American Car Rental Association opined that because the fee is imposed on rental transactions, the liability for the fee lies on the shoulders of the businesses. If unable to collect the fee, a business would be responsible for making it up to the Colorado Department of Revenue.Two of the three federal appeals judges on the panel ultimately sided with the state’s view that the fee is imposed on consumers, and rental companies are simply required to collect and submit it.“This approach is no different from state sales taxes, which businesses collect from consumers and remit to the state,” Matheson wrote.The 2024 statute requires the Colorado High Performance Transportation Enterprise to impose a tax “that is reasonably calculated to generate only the amount of revenue needed to pay the overall costs of providing the services to fee payers that will be funded with that revenue.”Though the statute doesn’t define “fee payer,” the funded services would include “projects to provide diverse, multimodal transportation options that reduce traffic congestion and degradation of existing surface transportation infrastructure, offer more transportation choices for system users, and reduce wear and tear on and increase the reliability, safety and expected useful life of state highways and bridges.”Matheson said the listed services reflect lawmakers’ intent to benefit drivers of all vehicles, not just rental vehicles.“We conclude that the phrase ‘fee payers’ in subsection (7.6)(a)(I) refers to the persons who rent vehicles, and not car rental businesses,” Matheson wrote. “Those persons, not car rental businesses, will benefit from the services provided by the surface transportation infrastructure projects funded by the fee.”Because the fee is imposed on consumers, federal law concerning taxes imposed against businesses does nothing to preempt its enforcement.U.S. Circuit Judge Joel Carson agreed with Matheson, but fellow Donald Trump appointee Allison Eid dissented.“Colorado assesses and exacts payment of the fee from car rental companies, not consumers — a ‘levy’ upon airport businesses,” the circuit judge wrote. “And Colorado charges the fee exclusively on one specific service, short-term vehicle rentals — a fee not generally imposed on sales or services. Accordingly, I respectfully dissent.”Eid said focusing on the term “fee payers” overlooks the broader statutory framework supporting the fee operating on airport businesses, not consumers. Because companies have no obligation to pass the congestion impact fee onto their consumers, she determined the companies themselves will remain liable for the fee.“Colorado’s statutory scheme instead assesses and exacts the fee directly and exclusively upon car rental companies,” she wrote.Though the majority didn’t get to this issue, she added the fee is not generally imposed because it applies to one service — car rentals — and not all services.The state argued that “general” applies not to all services but to all services within a specific “class, kind or group.” Because the tax applies to all car rentals, not just those operating in airports, the tax is general and not a tax specifically levied against airport businesses.But again, Eid’s perspective is broader. The “class, kind or group” is not a specific service like car rentals, but instead itself is “sales and services.” Therefore the tax applying to one type of service is not general.Neither party replied to a request for comment.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads