Ten years ago, the term “sharing economy” would have had little meaning to most people. Fast forward to today and sharing economy business models have seemingly taken the business world by storm. Of course, with this new economic model come new issues regarding taxation.   

When most people think of sharing economy business models, companies such as Airbnb and Uber immediately come to mind.  You can now add Getaround to your list if you haven’t already. Getaround is a car rental start-up offering peer-to-peer car sharing and local rental service. Using Getaround, vehicle owners can offer their vehicles to others for rent (in the same way you might offer your home for rent on Airbnb) and using the company’s unique technology, Getaround Connect, owners can locate and unlock their cars without a key in addition to adding security features such as GPS tracking. The company most recently launched in Washington D.C. and already operates in San Francisco, Berkeley, Chicago, Oakland and Portland.

Like Airbnb, Lyft and Uber, Getaround may soon find itself confronted with the challenge of deciphering whether or not sales tax is due and determining who has responsibility for collecting the tax. With respect to car rental transactions in many states, sales tax applies to the car rental fees. If you live in one of those states, and you decide to rent your car under a peer-to-peer rental program, the next question is who is liable to calculate, collect and remit that tax in states where such businesses operate? Washington D.C., for example, imposes a general sales tax on the lease or rental of tangible personal property and applies an additional special gross receipts tax to the rental or leasing of vehicles. Similarly, Illinois imposes sales taxes on persons or companies engaged in the business of renting automobiles when the rental period is for one year or less.

Based on a review of Getaround’s terms of service, it appears that persons offering their cars for rent agree to “pay all applicable taxes or charges imposed by any government entity in connection with [their] participation in the service,” but the terms of service are unclear with respect to which of the parties to the agreement is responsible for collecting and remitting sales taxes due. As such, it is likely that as Getaround and companies offering similar services continue expanding, states will be forced to ponder this question. In the Daily Tax Report, Bloomberg BNA’s Martha W. Kessler recently highlighted the tax issues states must now address with respect to tax collection and remittance concerning transportation network companies such as Uber and Lyft. Clearly, peer-to-peer car sharing business models will present similar issues.

There would certainly be incentive for vehicle owners to jump on the peer-to-peer car-sharing bandwagon if they aren’t saddled with the responsibility of calculating, collecting and remitting taxes. It would not seem impractical for states to require the peer-to-peer car sharing companies to bear the burden of tax collection and remittance because vehicles owners and renters will likely have sales tax exposure on costs and fees associated with using the service. Getaround, for instance, imposes booking fees, late fees, fees for set-up and installation of Getaround Connect, licensing fees, cancellation fees and damage fees. All of these added costs may be subject to sales tax depending upon the state in which the owner or renter is located, and the company will likely be responsible for collection of taxes imposed on such fees. 

Washington and Illinois are two jurisdictions in which Getaround operates where damage fees are subject to sales tax. In California, damage fees are not considered a taxable portion of rental charges, but fees for failing to return the vehicle in a timely manner are subject to tax. Likewise, late fees would be taxable in Illinois. Peer-to-peer car rental is just another example of how 20th century tax systems are forced to quickly adjust to 21st century business models.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you think peer-to-peer car rental service providers should be liable to collect sales tax on behalf of car owners?

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