Gov. Mike Dunleavy on Tuesday vetoed a measure that was intended to end a long-running tax dispute between the state of Alaska, brick-and-mortar rental car companies and Turo, a peer-to-peer car rental website.
For years, the state has tried to collect a 10% state tax on vehicle rentals from Turo, an application that allows people to rent out their cars online. Turo has claimed the tax should not apply to its drivers because the platform itself does not own and maintain a fleet of vehicles.
A trip to the courts in 2018 did not resolve the dispute between the state and the tech company. In recent years, the state had stopped assessing the tax on Turo drivers and has been unsure how much revenue it was missing out on. The Alaska Department of Revenue said in January that 25 delinquent Alaska taxpayers owed the state around $470,000 in unpaid vehicle rental taxes.
Senate Bill 127, introduced by Sen. Matt Claman, D-Anchorage, was intended to level the playing field by imposing the same 10% tax on Turo that is imposed on traditional rental car companies like Avis and Enterprise. The tax is used by the state on road maintenance and for state parks.
As SB 127 advanced through the Legislature, it was amended to reach a compromise between the different rental car players. Turo agreed to remit a lower 8% tax on vehicle rentals to the state. The new tax would also no longer be applied retroactively.
“We appreciate the proposed change and fully support it on behalf of our Alaskan P2P hosts,” said Kyndell Gaglio, who works in government relations for Turo.
Carrigan Grigsby, executive vice president of Avis Alaska, supported the bill, and so did Bill Gardner, vice president of Enterprise Holdings, who said that “this legislation helps to level the playing field regarding taxes/fees on all car rental transactions.”
SB 127 passed the Legislature in May with strong bipartisan support. Fifteen Democratic and Republican senators voted for the bill. Republican Sens. Mike Shower, Bert Stedman and Shelley Hughes voted no, along with Sen. Scott Kawasaki, a Fairbanks Democrat.
In the House, 36 Republicans, independents and Democrats voted in support of SB 127. Hard-right GOP Reps. Ben Carpenter and David Eastman were the only two no votes.
The Republican-led House majority issued a news release in May, touting the passage of the bill as a tax cut. Big Lake Republican Rep. Kevin McCabe, chair of the House Transportation Committee, said at the time that the measure would promote economic growth.
“At its core, SB 127 is about fairness and efficiency,” McCabe, a conservative Republican, said in a prepared statement. “By clarifying tax collection responsibilities and lowering the rental vehicle tax rate, we are creating a more equitable system that benefits both renters and vehicle owners.”
Still, Dunleavy vetoed the bill on Tuesday. In a message accompanying the veto announcement, the governor said that “unnecessary taxation of a new and growing industry is bad public policy. Accordingly, I have vetoed this bill.”
Claman said in a Wednesday interview that he was “disappointed” by the veto. He said that Dunleavy’s officials at the Department of Revenue had been supportive of the bill in legislative committee hearings. They repeatedly emphasized that the measure was not imposing a new tax, but clarifying an existing one.
“So, with the veto, a Turo owner today is now still liable for the 10% tax. That’s been part of Alaska law for decades,” Claman said.
In an email, Catherine Mejia, a spokesperson for Turo, said on Thursday that she could not comment on the governor’s veto decision, “as we are assessing what it means for Turo’s car-sharing community.”
Dunleavy’s veto decision was “baffling” to Grigsby. He said the governor failed to understand the “amount of work” that went into the compromise agreement between rental car companies, Turo, and members of his own administration.
“It’s just baffling to me that this guy doesn’t understand basic law that is on the books,” Grigsby said about Dunleavy’s veto. “I mean it’s not rocket science.”
Grigsby said Avis Alaska believes the state’s vehicle rental tax should apply fairly to peer-to-peer car-sharing websites like Turo. Now Avis, the largest brick-and-mortar rental car company in Alaska, is considering a trip to the courts to challenge how the state imposes taxes, he said.