Alaska is seeking taxes on ride-sharing platform Turo in a long-running dispute

JUNE — 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 long-running 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 should incur the state’s 10 percent rental car tax, which is levied on sales of brick-and-mortar car rental agencies since 2003. Turo has argued that it is not a car rental company that owns a fleet of vehicles, meaning it should not be liable for this tax.

Assistant Commissioner of Revenue 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 data from the San Francisco-based company, it’s not possible to estimate how much tax revenue the state doesn’t receive from Alaskans who rent their cars through Turo, known as “hosts.”

In March 2018, the state sued Turo for refusing to comply with subpoenas requiring the company to produce its financial records dating back to 2009. Former Juneau Superior Court Judge Louis James Menendez dismissed the case later that year and said the subpoena was excessive. wide and excessively heavy.

The state Division of Taxation issued its subpoenas “for the express purpose” of securing information to determine whether Turo was liable for state taxes, Menendez said. Because the subpoenas were unsuccessful, the judge said he could not answer the question underlying the case: whether Alaska’s rental vehicle tax should apply to Turo.

Since the state’s lawsuit was dismissed, the Department of the Treasury has sought a legislative solution, supporting measures to clearly specify in state law that Turo is responsible for collecting the 10% state tax on vehicle rentals from renters. A bill backed by the Dunleavy administration stalled in the Senate before the end of the first regular legislative session last month.

In subsequent years, the state has collected taxes directly from the hosts, including, until recently, seizing some of their bank accounts.

But there have been challenges.

Turo handles all financial transactions itself and pays hosts directly after deducting fees, meaning hosts have no method of collecting taxes from renters. This means hosts must pay their tax obligations 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, especially at the end of the pandemic, when rental cars were scarce and prices soared.

Rental car agencies estimate there are more than 3,000 vehicles 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 it generates locally per year.

For traditional car rental companies, charging state taxes to Turo is a matter of fairness. Carrigan Grigsby, executive vice president of Avis Alaska, the state’s largest car rental company, said accommodation platforms should not receive preferential treatment and would be allowed to charge lower rates for clients.

“Obviously, we believe businesses should operate on a level playing field,” he told a state Senate committee in April.

Grigsby said some Turo hosts are effectively operating as small businesses, and the state should tax them as such. Turo has three categories of hosts and considers a “professional host” to typically have 10 or more cars, often using the platform as their primary source of income.

Turo’s business has also seen strong growth in recent years. By the end of 2022, the billion-dollar company reported that it had 160,000 active hosts and 320,000 active vehicles in 11,000 cities across the US, Europe and Australia. The privately held company, which filed an updated initial public offering with the U.S. Securities and Exchange Commission in March, reported generating revenue of $746.6 million in 2022, up 59% from previous year

“Collect an old 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 has the support of the car rental industry.

Under Claman’s bill, Turo would impose the 10 percent vehicle rental tax on the lessee at the point of sale through its app or website, and the company would remit the tax revenue to the state quarterly.

“We are not imposing a new tax and trying to apply it retroactively. We’re 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 to collect taxes in Alaska.

In 2020, the Anchorage Assembly passed an ordinance to expand its own 8 percent rental car tax to include platforms like Turo. Anchorage Township estimated at the time that the change would raise an additional $760,000 per year, increasing by 5% annually.

The municipality does not distinguish between accommodation platforms and car rental agencies when calculating vehicle rental tax revenue, a spokesperson for the mayor’s office said. city 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 percent increase over the same period, data show of 2019, before the COVID-19 pandemic and when council taxes were imposed for the first time. I shoot

Unfruitful meetings

Turo’s tax dispute has played out largely behind closed doors, with meetings late last year between members of the Dunleavy administration and Turo representatives. But those meetings were not fruitful, with a Treasury Department memo attached to SB 127 stating that Turo “has not been willing to find a workable solution.”

“I don’t see them working in good faith,” Limani said. “And they’re just trying to do it as long as they can, anticipating that it may or may not happen in the near future.”

Catherine Mejia, a spokeswoman for Turo, denies that account. He said the state and the rental car industry have blocked approval of any compromise tax figure, but Turo users should not be required to pay the full 10 percent state tax .

“We think it’s very unfair to local residents,” he said, arguing that accommodation platforms and car rental agencies are fundamentally different businesses. “So we’re willing to come to 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 to him that the company might accept a lower tax figure. But the Dunleavy administration wasn’t ready to support it, he said.

Grigsby with Avis Alaska said car rental agencies would insist that any new car rental tax apply equally to themselves and peer-to-peer car rental services.

Host accounts embargoed

Some hosts in Alaska are reporting that their bank accounts have been garnished by the state for failure to pay rental vehicle tax. Kyla Dinkel, an Anchorage financial advisor who currently has 15 cars listed on Turo, estimates she’ll make $22,000 to $24,000 a month in June, July and August.

After discussing the issue with other Turo users online, Dinkel said he stopped paying state taxes, adding, “there is no legislation that shows us as Turo hosts that we should be personally responsible for ‘these taxes’.

Dinkel said the state seized his bank account twice, 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 delinquent figures represent just some of the hosts who 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 extrapolated estimates from earlier filings.

By email, Limani said that due to taxpayer confidentiality, the Dunleavy administration could not comment on specifics about how many Alaska Turo hosts had their accounts frozen and how many have since been refunded.

The governor quietly ended the direct tax collection of Turo hosts late last year, instead of anticipating a legislative solution, according to a Treasury Department memo posted online in April along with Claman’s bill, which was not passed 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.