JUNEAU — The state of Alaska wants to collect taxes from Turo, the online platform where people can advertise and rent their cars, after multiple legislative efforts and a trip to court failed to resolve a longstanding dispute.
The dispute raises questions about how e-commerce is regulated in Alaska and the state’s power to enforce its laws.
The state has said that transactions made through Turo and other peer-to-peer car rental websites must incur the state’s 10% car rental tax, which has been imposed on sales by rental agencies. traditional car rental since 2003. Turo has argued that it is not a car rental company that owns a fleet of vehicles, which means it should not be responsible for that tax.
Deputy Revenue Commissioner Fadil Limani said Turo accounts for the vast majority of online car rentals in Alaska, and the state could be losing millions of dollars a year.
Without the data from the San Francisco-based company, it’s not possible to estimate how much tax revenue the state foregoes from Alaskans who rent their cars through Turo, called “hosts.”
In March 2018, the state sued Turo for refusing to comply with subpoenas requiring the company to show its financial records dating back to 2009. Former Juneau Superior Court Judge Louis James Menendez dismissed the case later that year and He said the subpoena was too broad and unduly burdensome.
The state Division of Taxation issued its subpoenas “for the express purpose” of obtaining information to determine whether Turo was liable for state taxes, Menendez said. Because the subpoenas were unsuccessful, the judge said he couldn’t answer the underlying question in the case: whether the Alaska car rental tax should apply to Turo.
Since the state’s lawsuit was dismissed, the Department of Revenue has sought a legislative solution, supporting measures to clearly specify in state law that Turo is responsible for collecting the state 10% rental car tax from renters. A bill supported by the Dunleavy administration stalled in the Senate before the end of the first regular legislative session last month.
In the intervening years, the state has collected taxes directly from hosts, even, until recently, seizing some of their bank accounts.
But there have been challenges.
Turo handles all financial transactions itself and pays hosts directly after fees are subtracted, which means hosts have no method of collecting taxes from tenants. That means hosts have had to pay their tax liabilities out of pocket, sometimes months after a transaction has taken place.
‘Level playing field’
The number of Alaska Turo hosts has grown exponentially in recent years, particularly at the end of the pandemic when rental cars were in short supply and prices skyrocketed.
Car rental agencies estimate that there are more than 3,000 vehicles listed on Turo in Anchorage and Mat-Su, making the platform the largest single source of rental vehicles in the state.
Turo declined to share with the Daily News how many Alaska-based hosts there are or how much revenue he generates locally per year.
For traditional car rental companies, charging state taxes on Turos is fair. Carrigan Grigsby, executive vice president of Avis Alaska, the largest traditional car rental company in the state, said lodging platforms should not be given preferential treatment and, in fact, should be allowed to charge lower rates to customers.
“Obviously, we believe that businesses should operate on a level playing field,” he told a state Senate committee in April.
Grigsby said some Turo hosts effectively operate as small businesses, and the state should tax them that way. Turo has three categories of hosts and considers that a “professional host” usually has 10 or more cars and often uses the platform as their main source of income.
Turo’s business has also experienced strong growth in recent years. By the end of 2022, the multi-billion dollar company reported having 160,000 active hosts and 320,000 active vehicles in 11,000 cities across the US, Europe and Australia. The private company, which filed an updated initial public offering with the US Securities and Exchange Commission in March, reported that it generated $746.6 million in revenue in 2022, an increase of 59% over the previous year.
‘Collect an ancient tax’
Senate Bill 127, introduced in April by Sen. Matt Claman, D-Anchorage, is the latest attempt to resolve Turo’s tax dispute with the state after two previous legislative efforts failed. It is supported by the car rental industry.
Under Claman’s bill, Turo would levy the 10% car rental tax on the renter at the point of sale through its app or website, and the company would then remit the tax revenue to the state on a quarterly basis.
“We are not imposing a new tax and trying to apply it retroactively. We are just trying to collect an old tax or an existing tax,” he said.
Limani said it would be easy for Turo to enable the tax collection feature on its website and app, which it already does in 40 states. And there is precedent for Turo collecting taxes in Alaska.
In 2020, the Anchorage Assembly passed an ordinance to extend its own 8% rental car tax to include platforms like the Turo. The City of Anchorage estimated at the time that the change would raise an additional $760,000 per year, increasing by 5% per year.
The municipality does not distinguish between accommodation platforms and car rental agencies when calculating vehicle rental tax revenue, a spokesman for the mayor’s office said. City Data shows Anchorage car rental companies earned more than $63 million in the third quarter of last year and paid $4.2 million in taxes, a 36% increase over the same period in 2019, before the pandemic of COVID-19 and when council taxes were first imposed. Turo.
The Turo tax dispute has largely taken place behind closed doors, involving meetings late last year between members of the Dunleavy administration and Turo representatives. But those meetings weren’t fruitful, with a Department of Revenue memo attached to SB 127 stating that Turo “has been unwilling to find a viable solution.”
“I just don’t see them working in good faith,” Limani said. “And they’re just trying to manage this for as long as they can, anticipating that it may or may not happen at some point in the near future.”
Catherine Mejia, a spokeswoman for Turo, questions that version. She said the state and the car rental industry have blocked approval of any compromise tax figures, but Turo users should not be required to pay the full 10% state tax.
“We think it’s grossly unfair to local residents,” he said, arguing that hosting platforms and car rental agencies are fundamentally different businesses. “So we’re willing to sit at the table with anything between zero and 9%.”
Limani acknowledged that Alaska lobbyist Ted Popely, who has had a $5,000-a-month contract with Turo since January, suggested that the company might agree to a lower tax figure. But Dunleavy’s administration was not prepared to support that, he said.
Grigsby with Avis Alaska He said car rental agencies would insist that any new car rental tax rates apply equally to themselves and to peer-to-peer car rental services.
Embargoed Host Accounts
Some Alaskan hosts report that the state seized their bank accounts for failure to pay rental car tax. Kyla Dinkel, an Anchorage financial adviser who currently has 15 cars listed on Turo, estimates that she will earn between $22,000 and $24,000 per month in June, July and August.
After discussing the issue with other Turo users online, Dinkel said he stopped paying state taxes, adding that “there is no legislation that shows us that as Turo hosts we should be personally responsible for those taxes.”
Dinkel said the state twice seized his bank account, but an amount was refunded, he said, after the state had “estimated” how much he had earned.
In April, the Department of Revenue said 25 Alaska Turo hosts collectively owed more than $470,000 in back taxes, or an average of $19,000 each.
The state’s delinquency figures represent just some of the hosts that had paid taxes in the past; there are likely hundreds more who have never paid taxes to the state and are unknown to auditors, Limani said, adding that the state’s delinquency figures were estimates extrapolated from previous filings.
By email, Limani said that due to taxpayer confidentiality, Dunleavy’s administration could not comment on details about how many Alaska Turo hosts had their accounts seized and how many were later refunded.
The governor quietly ended direct tax collection from Turo hosts late last year, instead anticipating a legislative solution, according to a Department of Revenue memo posted online in April along with Claman’s bill. , which was not approved this year.
The Legislature had been focused on passing a budget and other bills, and there just wasn’t enough time, Limani said, adding that the plan now is to revive the measure during next year’s regular legislative session.