New report: Big Rental enjoys $7 billion tax exemption while states scramble for tax revenue
Rental car companies are utilizing an archaic sales tax exemption amounting to $6.3 billion annually across the United States, according to a new report from NetChoice.
While NetChoice had previously exposed this sales tax loophole to be worth $3.6 billion annually in 2020, this new report shows the exemption has grown substantially even as states search for additional tax revenue to fund community services.
Unlike individual car buyers who pay a full sales tax on their vehicle purchases, traditional rental car companies like Hertz and Enterprise are exempt based on decades-old deals they made with lawmakers. With frequent fleet replacements, this tax exemption creates a very lucrative free pass for “Big Rental.”
The American Car Rental Association defended the exemption in their March 2025 newsletter, stating that taxing business inventory is "bad tax policy."
However, rental car companies’ business inventory differs greatly from typical retailers. In 2020, Oregon Tax Court found in EAN Holdings LLC vs. Oregon Department of Revenue that rental car companies don't qualify for this exemption because they purchase vehicles as revenue-generating assets, retaining ownership. Unlike retailers who buy inventory to sell, rental companies keep and rent their vehicles. Consequently, Oregon now requires rental companies to pay sales tax on vehicle purchases.
Meanwhile, legislators in Maryland, Washington, and New York are working right now to eliminate this exemption to increase state revenue. In recent years, several lawmakers in Maine and Massachusetts also made attempts to take this action.
In addition to the $6.3 billion tax exemption on vehicle purchases that rental car companies benefit from, these companies are simultaneously charging consumers “Vehicle Licence Fees” for titling and registration costs. These fees, often hidden until checkout alongside any other applicable charges, generate $757 million in annual revenue for Big Rental. Unlike ordinary vehicle owners, rental car companies avoid these standard costs by passing them onto customers under the clever guise of a government-mandated fee.
Washington, D.C.-based think tank and advocacy group NetChoice released a report estimating the combined impact of tax breaks and fees at $7 billion annually. Their President and CEO Steve DelBianco criticized rental companies for "winning sweetheart tax deals" while avoiding taxes paid by other businesses.
Some states have begun addressing these practices:
Delaware prohibits separate Vehicle License Fee charges in rental agreements
New York's governor has vetoed legislation that would have facilitated these fees
NetChoice recommends additional states take similar actions to eliminate both the tax exemption and misleading fees.