BILL #    HB 2559	TITLE: peer-to-peer car sharing
SPONSOR:    Grantham	STATUS: As Amended by Senate FIN
PREPARED BY:    Hans Olofsson

Description

HB 2559, as amended by the Senate Finance Committee, would establish guidelines for insurance requirements, safety and taxation of peer-to-peer (P2P) car sharing transactions using an online platform that connects vehicle owners with individuals who want to drive their vehicle under a car sharing agreement.

Under the bill, P2P car sharing would exclude vehicles rented out by commercial rental car companies, or vehicles purchased with a transaction privilege tax (TPT) exemption.  Moreover, to qualify as a "shared vehicle," the vehicle cannot be exclusively used for P2P car sharing.  The vehicle must be used by its owner for personal use outside of P2P car sharing.  

HB 2559, which would become effective on the general effective date, provides that P2P car sharing programs be exempted from the following rental car surcharges:

· Statewide rental car surcharge (5.0% of gross income from contract) collected by rental companies for the reimbursement of the vehicle license tax (VLT) paid on their rental vehicles.  Any surcharge collected in excess of the VLT must be remitted to the Arizona Department of Transportation (ADOT) to be deposited into the Highway User Revenue Fund (HURF).

· Maricopa County rental car surcharge (the greater of $2.50 or 3.25% of the gross income from contract) used to fund the Arizona Sports and Tourism Authority and the Maricopa County Stadium District.

· Pima County rental car surcharge ($3.50 fee per contract) used to fund the Pima County Stadium District.

The bill, however, would impose the following taxes on P2P car sharing transactions:

· State transaction privilege tax (TPT) on personal property rentals (5.6% on the gross income from contract).  The state share of this amount would be reduced by the distributions to the Arizona Sports and Tourism Authority and the Pima County Stadium District, as described below.

· County tax on personal property rentals (0.25% to 2.0% of gross income from contract).

· Municipal tax on rentals of tangible personal property (1.5% to 6.5% of gross income from contract).

The bill would also allow public airports to assess fees or charges on P2P car sharing transactions conducted at such airports.  In addition, 3.5% of the gross income from P2P car sharing transactions sourced to Maricopa County and Pima County under the state TPT would be distributed to the Arizona Sports and Tourism Authority and Pima County Stadium District, respectively.  These monies would be distributed from the portion of state TPT that would otherwise go to the General Fund.  

Estimated Impact

Due to a lack of verifiable data on current P2P car sharing tax collections, the JLBC Staff is not able to estimate the General Fund impact of the bill with certainty.  Based on limited information and some assumptions described in the Analysis section below, we estimate that the bill could generate General Fund revenue of up to $108,500 in FY 2020 and FY 2021 relative to current collections.  This estimate assumes that the first full-year impact of the bill would occur in FY 2020.  Due to considerable uncertainty regarding the future growth of the car sharing industry, we have not attempted to project possible revenue collections past FY 2021. 

As a fiscal note, our analysis does not address any legal issues concerning the bill.

(Continued)

Analysis

We have asked the Department of Revenue (DOR) whether any taxes are currently collected from P2P car sharing transactions in Arizona but have not yet received a response.  Representatives from the only P2P car sharing company currently operating in Arizona have indicated that this company does not collect any taxes or surcharges in the state. Some of the vehicle owners using their platform, however, could do so on their own.  We are not able to determine to what extent this currently occurs, if at all.

According to representatives of the car sharing industry, there is currently only one P2P car sharing company operating in Arizona.  According to a spokesperson for this company (as recently reported in the Arizona Capitol Times), there are 4,950 vehicles currently offered for rent on the company's online platform for Arizona.  The JLBC Staff has asked company representatives for the average income per vehicle in Arizona but have not yet received a response.  The company's online calculator for the Phoenix area suggests that a car sharing owner's expected earnings can vary widely depending on the make, model, and year of the vehicle.  As an exercise, we input a sample of vehicles into the online calculator and based on the result, we estimate that the average earnings per car sharing owner in the Phoenix area is approximately $300 per month.  Given our methodology, however, we acknowledge the speculative nature of this estimate.   

Based on the Arizona Capitol Times article and the P2P car sharing company's online calculator for the Phoenix area, we estimate the current annual gross income from car sharing transactions in the state to be $17.8 million [= 4,950 vehicles x $300 monthly gross income x 12 months].  Under the current state TPT rate of 5%, such activity would generate up to $891,000 in annual state sales tax revenues, of which $108,500 would be retained by the General Fund, as explained below.  This estimate would be less if any state TPT is currently collected from P2P car sharing transactions in the state. 

While the bill exempts P2P car sharing transactions from current rental car surcharges, it requires that 3.5% of the gross income from such transactions be distributed to either the Arizona Sports and Tourism Authority if sourced to Maricopa County or the Pima County Stadium District if sourced to Pima County.  After the required statutory revenue-sharing with counties and cities, the monies would be distributed from the personal property rental state TPT generated from such transactions.   

According to DOR's FY 2018 Annual Report, 77% of personal property rental state TPT revenue was generated in Maricopa County, 11% in Pima County, and 12% in the state's 13 remaining counties.  Since we do not have any geographic data on where the state's P2P car sharing transactions occur, our analysis assumes that the gross income from such activity is proportionate to the amount of personal property rental state TPT revenue generated in each county.  Based on this assumption, we estimate that the gross income from P2P car sharing is $13.7 million in Maricopa County, $2.0 million in Pima County, and $2.1 million in all other counties combined.

As noted above, the bill is estimated to generate up to $891,000 in state TPT revenue, of which 16.2% or $144,400 would be distributed to counties and 10.0% or $89,100 to cities and towns, as required under the statutory revenue-sharing formula.  In addition, the Arizona Sports and Tourism Authority would receive an estimated $478,600 [= $13.7 million x 3.5%] from state TPT whereas the Pima County Stadium District would receive an estimated $70,400 [= $2.0 million x 3.5%].  The General Fund would receive the balance of state TPT after these distributions, or $108,500.     

The behavioral response of car owners and renters using the P2P sharing platform to the imposition of taxes and fees under the bill is uncertain.  The taxes and fees would likely have the effect of either decreasing profitability or increasing car sharing prices, or some combination of both, which could result in fewer people participating in the car sharing program.  All else equal, such behavioral response would result in less tax revenues being collected.  We are not able to determine from available data or infer from existing studies, however, to what extent the bill's taxation of car sharing would affect such activity.    

In conclusion, based on limited data and a set of assumptions described above, the bill could generate up to an estimated $108,500 in General Fund revenue in FY 2020 and FY 2021.  This estimate assumes that the first full-year impact occurs in FY 2020.  Since the bill has a general effective date, however, the revenue gain in FY 2020 could end up being less than $108,500.

(Continued)

Local Government Impact

Counties and Cities

Under the statutory revenue sharing formula for the personal property rental classification, counties receive 16.2% of state TPT whereas cities receive 10.0%.  Based on the estimated amount of state TPT generated from car sharing under the bill, counties would receive up to an estimated $144,400 in FY 2020 and FY 2021.  Cities and towns would receive up to an estimated $89,100 in FY 2020 and FY 2021.  In addition to state-shared revenue, counties and cities would also collect revenues from the imposition of their own taxes.  The amounts collected would depend on where the transaction is sourced since tax rates vary from 0.25% to 2.0% for counties and from 1.5% to 6.5% for municipalities.

Arizona Sports and Tourism Authority and Pima County Stadium District

As described in more detail above, up to an estimated $478,600 from state TPT would be distributed to the Arizona Sports and Tourism Authority in FY 2020.  The corresponding amount distributed to the Pima County Stadium District is estimated to be up to $70,400.

5% Rental Car Surcharge

Since the bill exempts the 5% statewide rental car surcharge, there would be foregone revenues from such surcharge of up to $891,000 [= $17.8 million x 5.0%] in FY 2020 and FY 2021. 

4/8/19