BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 348
Senator Cogdill
As Amended April 13, 2009
Hearing Date: May 12, 2009
Civil Code
SK:jd
SUBJECT
Rental Car Companies: Increased Vehicle License Fee
DESCRIPTION
The 2009 Budget Act temporarily increased the vehicle license
fee (VLF) from the current rate of 0.65 percent to a rate of
1.15 percent. This bill would permit a rental car company to
recover the actual costs incurred by the company for the payment
of that increased VLF from rental car customers. This bill
would revise how this fee is calculated so that the amount of
the fee represents the company's good faith estimate of the
charge required to recover the actual total amount paid by the
company for the increased VLF rather than an amount that is
pro-rated for a particular rental car at a rate of 1/365th of
the increased VLF, as under existing law.
This bill would provide that the total of all increased VLF
recovery fees charged to rental car customers on an annual basis
cannot exceed the total fee increase actually paid by the rental
car company, and, if the amount collected by a rental car
company is different than the total amount paid, the company
must retain the amount collected and adjust the increased VLF
recovery fee in the following calendar year.
BACKGROUND
Existing law requires rental car companies to bundle, or
include, the VLF paid in the rental rate that is advertised,
quoted, and charged to rental car customers. As a part of the
2009 Budget Act, the VLF was increased temporarily from the
current rate of 0.65 percent to a rate of 1.15 percent.
(more)
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Beginning May 21, 2009, rental car companies are permitted to
separately state a portion of the increased VLF as an unbundled
charge that is not included with the current bundled rental
rate. This bill, which was introduced at the request of several
rental car companies, would revise how this charge is calculated
and allow rental car companies to recover from rental car
customers the actual costs incurred by the companies for the
payment of the increased VLF.
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CHANGES TO EXISTING LAW
1. Existing law requires rental car companies to "bundle," or
include, the VLF paid in any rental rate that is advertised,
quoted, and charged to rental car customers. Certain other
specified fees, such as taxes, customer facility charges, or
mileage charges are permitted to be unbundled and advertised,
quoted, and charged separately. (Civ. Code Sec. 1936(n)(1).)
Existing law temporarily increases the VLF from the current rate
of 0.65 percent to a rate of 1.15 percent. (Rev. and Tax Code
Secs. 10752, 10752.2.)
Existing law , beginning May 21, 2009, permits rental car
companies to separately advertise, quote, and charge the
higher cost of this increased VLF which shall be pro-rated at
1/365th of the fee increase in the annual VLF actually paid on
the particular vehicle being rented for each full or partial
24-hour rental day that the vehicle is rented. The total
amount of all increased VLF fees charged to renters may not
exceed the fee increase in the annual VLF actually paid for
the particular vehicle rented. (Civ. Code Sec. 1936.015.)
Existing law requires a rental car company, if it imposes
customer facility charges, airport concession fees, or tourism
commission assessments to provide, at the time of a quote, a
good faith estimate of the rental rate, taxes, the increased
VLF, customer facility charge, if any, airport concession fee,
if any, and tourism commission assessment, if any as well as
the total charges for the entire rental. (Civ. Code Sec.
1936.015(b)(3)(A).)
Existing law requires a rental car company, at the time and
place of the rental, to clearly and conspicuously disclose in
the rental contract the total of the rental rate, taxes, the
increased VLF, customer facility charge, if any, airport
concession fee, if any, and tourism commission assessment, if
any, for the entire rental, exclusive of charges that cannot
be determined at the time the rental commences. (Civ. Code
Sec. 1936.015(b)(3)(B).)
Existing law provides that Civil Code Section 1936.015 shall
only become operative if the VLF is increased above 0.65
percent of the value of the vehicle and will cease to become
operative upon restoration of the VLF to no more than 0.65
percent of such value. (Civ. Code Sec. 1936.015(e)(1).)
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This bill defines "increased vehicle license recovery fee" to
mean a charge that is designed to recover costs incurred by a
rental car company for payment of the increased VLF. This
bill would permit this fee to be unbundled and separately
advertised, quoted, and charged.
This bill would delete existing law which provides that the
amount that could be charged to a rental car customer for the
increased VLF be pro-rated for a particular rental car at a
rate of 1/365th of the increased VLF for each full or partial
24-hour rental day and would instead provide that the amount
of the fee shall represent the company's good faith estimate
of the company's daily charge calculated to recover its actual
total increased VLF. This amount must be separately and
clearly stated.
This bill would revise existing law which currently provides
that the total of all increased VLF fees charged to rental car
customers cannot exceed the fee increase in the annual VLF
actually paid for the particular vehicle rented to instead
provide that the total of all increased VLF recovery fees
charged to rental car customers on an annual basis cannot
exceed the total fee increase actually paid by the rental car
company.
This bill would provide that if the amount of the increased VLF
recovery fee collected by a rental car company in any calendar
year is different than the total amount paid by a rental car
company for increased VLF, then the company must retain the
amount collected and adjust the increased VLF recovery fee in
the following calendar year.
2. Existing law provides that the provisions of Section 1936.015
which relate to the disclosure and separately stated charges
for a customer facility charge or an airport concession fee
shall remain operative so long as the Secretary of Business,
Transportation, and Housing provides notice as specified.
(Civ. Code Sec. 1936.015(e)(2).)
This bill would delete this provision.
COMMENT
1. Stated need for the bill
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The author writes:
Existing law authorizes rental car companies to "pass through"
the VLF increase that was approved as part of the budget deal.
For practical purposes, the pass through allows rental car
companies to include the amount of the VLF increase as a
separate line item on a customer's bill.
Although the intent of the Legislature, as agreed to during
budget negotiations, was to authorize rental car companies to
utilize a pass through, the language in [SB] 10xx contained
several provisions that make doing so difficult, if not
impossible for rental car companies to utilize their pass
through without violating the law.
2. Bill raises two issues
This bill raises two issues. First, whether the rental car
companies should be able to recover their actual costs incurred
for the payment of the increased VLF and second whether there
are potential implementation issues regarding existing law that
might bear addressing.
a. Bill raises the public policy question of who should bear
the cost of the increased VLF for the days that a rental
car is not rented
By permitting rental car companies to recover the actual costs
incurred for the payment of the increased VLF and deleting the
existing pro-rated calculation for determining this cost, this
bill would have the effect of shifting the total cost of the
increased VLF from rental car companies to rental car
customers.
As a result, the question thus raised by this bill is who
should bear the cost of the increased VLF for the days that a
rental car sits on the lot and is not rented. Under the
existing pro-rated calculation, a rental car customer is only
responsible for an amount that represents 1/365th of the
increased VLF for each full or partial 24-hour rental day.
That means that the amount the customer pays is equivalent to
the amount of the increased VLF for the number of days the
customer rents the vehicle. Under this bill, the amount of
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the fee would represent the company's good faith estimate of
the charge required to recover the actual total amount paid by
the company for the increased VLF. As a result, a rental car
customer would be responsible for an amount determined on an
annual basis, including days that the rental vehicle sits on
the lot, unrented.
Supporters argue that the 1/365th formula-like a substantially
similar formula enacted in 1996 which sunset in 2001-precludes
"recovery of the full cost because cars, on average, are
rented only about 75 percent of the time as a result of the
need for rental companies to maintain fleets large enough to
meet customer demand on peak rental days." Supporters also
argue that the actual cost to consumers will be immaterial to
them when viewed in the context of a $65 transaction
(estimates provided to committee staff regarding the
additional cost to consumers depend on the value of the
vehicle, but range from nine cents to 15 cents).
While it may be the case, as the supporters state, that rental
cars are rented approximately 75 percent of the time, this
means that rental car companies will be able to recapture
approximately 75 percent of the increased VLF amount. In some
cases, this amount could be even higher because some rental
car companies have indicated that their vehicles are rented 90
percent of the time. In those cases, those companies would be
able to recoup 90 percent of the increased VLF amount.
The Center for Public Interest Law (CPIL) opposes the measure,
writing with respect to the issue of who should bear the
burden:
The default rule for taxes, fees, and charges is that those
subject to them must pay them. They then compete in the
market. Some of them pass through the charge, while others
increase efficiency and gain a competitive advantage over
those who decide to pass through all of it. Some pass
through only part of it. This is an issue the market
should decide, not the legislature. A tax or fee on an
automobile applies to the owner of it, and is not a proper
subject for pass-through to consumers.
In addition, as supporters note, the language contained in
SBx2 10 was modeled on language in a 1996 bill, SB 1070
(Calderon, Ch. 992, Stats. 1996). That bill defined "taxes"
for the purposes of the requirement that rental car companies
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could only advertise, quote, and charge a rental rate that
includes the entire amount except taxes and a mileage charge,
if any. Under the bill, taxes were defined to include the VLF
which shall be separately charged, clearly stated on the
rental agreement, and pro-rated at 1/365th of the annual VLF
actually paid on the particular vehicle being rented for each
full or partial 24-hour rental day that the vehicle is rented.
That bill sunset in 2002.
Supporters also point out that the Legislature passed and the
governor signed AB 2592 (Leno, Ch. 790, Stats. 2006) which
permitted rental car companies to separately state airport
concession fees and tourism commission assessments. At the
time of the quote, the rental car company must make a good
faith estimate of these fees and may not, at the time the
rental commences, charge the customer more than the amount of
the quote. While some have suggested that the formula in SBx2
10 is inconsistent with AB 2592 which permitted the entire
cost of these specified fees and assessments to be passed
through and separately stated, that formula recognized that
the pass through of airport concession fees and tourism
commission assessments is distinct from VLF charges.
CPIL further writes:
CPIL respectfully notes in passing that these same rental
car companies secured 2006 legislation (AB 2592 (Leno))
authorizing each of them - separately - to unbundle and
decide whether to pass through to consumers all or part of
the "airport concession fee" that they pay to airports for
the use of their facilities. Rather than making that
decision individually, we contend the companies colluded in
deciding (a) whether to pass on that charge, and (b) how
much of that charge to pass on. Those allegations are now
the subject of a federal antitrust lawsuit (Shames v.
Hertz, now pending in the U. S. District Court for the
Southern District of California). Although this bill does
not appear to allow the rental car companies to collude in
deciding whether and/or what percentage of the VLF to pass
on to consumers, the legislature should be aware that this
industry has abused prior legislation allowing a consumer
pass-through. This is a bad precedent to set. It applies
to no other industry. Neither history nor equity commend
it here.
For these reasons, the committee should consider whether it is
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appropriate for consumers to bear the costs of the increased
VLF for the days that a rental vehicle is not rented and
whether the bill should be amended to restore provisions of
existing Civil Code Section 1936.015 which do not place the
burden on consumers.
SHOULD THE BILL BE AMENDED TO RESTORE PROVISIONS OF EXISTING
LAW WHICH DO NOT PLACE THE BURDEN ON CONSUMERS FOR THE COSTS
OF THE INCREASED VLF FOR THE DAYS THAT A RENTAL VEHICLE IS NOT
RENTED?
b. This bill's approach to the implementation issue:
permits a rental car company to spread the cost of the
increased VLF over its entire fleet
Under existing law, the total of all increased VLF fees
charged to rental car customers cannot exceed the fee increase
in the annual VLF actually paid for the particular vehicle
rented. This bill would revise this provision to instead
provide that the total of all increased VLF recovery fees
charged to rental car customers on an annual basis cannot
exceed the total fee increase actually paid by the rental car
company. The effect of this change is to extend the VLF fee
over the entire fleet, rather than for the particular vehicle
rented, and over an annual basis.
In support of this provision, the author writes:
Unlike an airport concession fee, which can easily be
calculated and applied to each car rented from an airport,
the VLF increase is much more difficult to calculate as it
is different for almost every vehicle. Since SB 10xx
requires that the VLF charge on a customer's bill reflect
the amount "actually paid (by the company) for the
particular vehicle being rented," to be in compliance, a
rental car company would have to know exactly what car
would be assigned to a customer at the time that the
reservation is made. . . . Even if the company were to
know the make and model of a car that a customer reserved,
differences in the original purchase price and options on
each individual vehicle lead to variations in the amount of
VLF paid by the company.
It is important to note however, that at the time that a quote
is given the rental car company need only provide the customer
with a "good faith estimate" of the increased VLF. At the
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time that the rental actually commences, the increased VLF
must be disclosed to the customer but at this point the
company knows which rental vehicle will be assigned to the
customer and presumably can determine the appropriate charge
for the increased VLF. Existing law also requires that the
charges imposed at the time the rental actually commences
cannot exceed the amount of the quote provided in the
reservation, unless the renter changes the terms of the rental
contract. As a result, even though the quoted amount must be
a good faith estimate under existing law, it cannot exceed the
amount that is actually charged to a renter when he or she
shows up at the rental counter. Because of this, it may be
the case, as the supporters of this bill contend, that there
are mechanical issues with implementation of the recovery
formula because it is based on the amount of the increased VLF
actually paid on the particular vehicle being rented. The
supporters explain:
The trailer bill would require the rental company to know
at the time of the reservation which particular car will be
assigned to the customer when the rental commences. This
is impossible since most customers reserve rental cars days
or even weeks prior to the rental period. Since customers
reserve a class of car rather than a specific vehicle, SB
348 responds to these predicaments by permitting rental
companies to base their VLF recovery fee on how much more
they pay to license their fleets per year instead of
calculating the increased costs car-by-car.
However, this bill's approach to the mechanical issue-to
spread the cost of the increased VLF over the entire fleet
rather than apportioned by each particular rental
vehicle-raises concerns that renters of economy class cars
would be subsidizing the cost of the increased VLF on the
company's fleet of luxury or SUV rental cars, thereby paying
more than their fair share. In addition, it could also be the
case that a renter then pays an increased vehicle license
recovery fee even though the rental company has not paid an
increased vehicle license fee on the particular vehicle he or
she rents. In order to address these concerns and resolve the
implementation issues described above, the bill should be
amended to apply the 1/365th formula to a class of rental cars
rather than to a particular rental vehicle, as under existing
law, or to the entire fleet, as proposed by this bill.
SHOULD THE BILL BE AMENDED TO ADDRESS THE IMPLEMENTATION ISSUE
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RAISED BY RENTAL CAR COMPANIES IN A MANNER THAT ENSURES THAT
RENTERS OF ECONOMY CLASS CARS ARE NOT SUBSIDIZING RENTERS OF
LUXURY RENTAL CARS?
4. Rental car company permitted to determine a good faith
estimate of the amount required to recover its actual
increased VLF costs
Because a rental car company is permitted under the bill to
determine a good faith estimate of its daily charge which would
recover its actual total costs of the increased VLF, this bill
provides language to address the circumstance where the
company's good faith estimate is incorrect. Under the bill, if
the amount of the increased VLF recovery fee collected by a
rental car company in any calendar year is different than the
total amount paid by a rental car company for the increased VLF,
the company must do both of the following: (1) retain the amount
collected; and (2) adjust the increased VLF recovery fee in the
following calendar year.
This means that if the rental car company collected too much in
one year, it would have to reduce its daily charge the following
year to compensate. On the other hand, the language would
appear to also permit the opposite situation: if a rental car
company underestimated its daily charge (for example, if it
overestimated the number of days that rental cars would sit on
the lots, unrented), then the bill would permit the company to
make up the difference the next year by increasing the estimated
daily charge for the following year's rental car customers. The
supporters of this bill have indicated that it was not the
intent to capture the latter situation. In order to ensure that
the actual language of the bill more accurately tracks the
intent of this provision, the bill should be amended as follows:
Suggested amendment
1. On page 3, line 35 delete "different" and insert "greater"
2. On page 4, line 1 delete "adjust" and insert "decrease"
3. On page 4, line 2 after "year" insert "to account for the
excess amount collected"
5. Sunset relating to ability of rental car companies to pass
through customer facility charges or airport concession fees
Under existing law, the provisions of Section 1936.015 which
relate to the disclosure and separately stated charges for a
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customer facility charge or an airport concession fee are to
remain operative so long as the Secretary of Business,
Transportation, and Housing provides notice as specified.
This bill would delete this provision because supporters are
concerned about the implication of its inclusion. They point
out that the Secretary has provided the specified notice and
therefore assert that this provision is unnecessary. Because of
this, they express concern that a court might later view this
provision to have an effect it is not intended to have because
the Legislature is not deemed to engage in idle acts. (Stafford
v. Realty Bond Service Corp. (1952) 39 Cal.2d 797.)
Support : Avis Budget Group; Hertz Corporation; Enterprise;
Alamo; National
Opposition : Center for Public Interest Law
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation : See Comment 2.
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