5 reasons why car rental fees and taxes are so high in the U.S.

why are car rental fees and taxes so high?

It is obvious that you’ve been looking to rent out a car in the US and have been browsing through many options and choices if you have landed on this article. Prices in the automobile industry of any sort keep fluctuating and this could affect our monthly finances or holiday expenses if you are looking to rent a car in the US. So why are car rental fees and taxes so high? Let’s investigate the reasons.


  1. Economic Growth and Impact

Travel and tourism contribute immensely to the economic growth of the U.S. The Travel and Tourism industry employs more than 6 million individuals. Approximately over 70% of travel expenditure in the U.S is for leisure purposes and the remaining for business. Renting a car has become an important aspect of American Travel. It is the most convenient and flexible way of reaching their desired destinations. The local government has used this as an opportunity to make revenue by imposing taxes on travellers outside the jurisdiction.


  1. Government Taxes

State and local governments have used car rental excise taxes to raise revenue. According to the statistics provided by Tax Foundation in Washington DC, forty-four states levy rental car excise taxes. Car rental businesses pay high taxes depending on their prime spot. Be very wise with your choice when headed to a car rental place. For example, airport car rental desks charge higher compared to other rental businesses in the States because they pay an extra airport concession fee for the location.

The period of your car rental hire will also determine the extra charges that may apply. Car rental excise tax applies at different rates for short-term car rentals and long-term car rentals. Long term lease arrangements in the U.S are exempted from these taxes or sometimes a different rate is applied.


  1. Insurance Coverage

Car rental places can pitch you hard on insurance.  The agent might offer insurance to avoid any potential damage. Every time you decline, the salesperson will inevitably keep pushing you to pay extra seeming it like its for your protection. It isn’t. Most drivers do not benefit from insurance. It is forced on you because it is a high margin item and the salesperson makes a commission out of it. For car rental companies, insurance policies cost a little and selling them to you will be an added daily fee, increasing your bill substantially.


  1. Fuel Gauge

Residents opt to rent a car when they want to avoid mileage affecting their own vehicle during long route travels. In this case, tax burden is felt by the residents directly. Many car rental places offer an option called pre-pay for fuel which means you do not have to refuel the vehicle upon returning. If you are intending to use a full tank of gas, then this option is a convenient one, however, if you will not be using as much fuel, choosing the prepaid refuelling option is a waste of money and an added charge.


  1. Demand and Supply

According to the data released by the US Bureau of Labor Statistics, it was about 88% more expensive to rent a car in June this year which contributed to the inflation hitting the U.S consumer prices. This is in comparison to the pandemic situation in 2020. Due to the travel restrictions in 2020, many car rental companies had to sell cars from their fleet to survive. However, when the demand shot back up again this year, many car rental businesses could not match the soaring demand with inadequate supply to match it, leading to higher rental prices.


Taxes levied by the state and local government has contributed to the high car rental fees. While some policymakers view this as a way of shifting the tax burden on nonresidents, this is curtailing economic growth. There are many other options that travellers have for rental cars which include peer-to-peer car-sharing arrangements. Policymakers could reanalyze these discriminatory taxes in a way it does not affect the traveller’s bill.


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