The popular car-sharing service, Car2Go, said Friday it will suspend service in the Twin Cities at the end of the year due to "extremely high" state car rental taxes.
Car2Go arrived in the Twin Cities three years ago in Minneapolis, with St. Paul service following in 2014. A part of the burgeoning "sharing economy," it branched out to the Minneapolis-St. Paul International Airport earlier this year. Currently, there are 400 Car2Go vehicles and about 29,000 members in Twin Cities.
Users of the ubiquitous blue-and-white Smart cars pay a flat fee of $35 to join, and pay by the minute, hour or day, depending on how the car is used. Car2Go users can find and reserve the cars using a smartphone app and then leave the vehicle at their chosen destination.
"I feel like someone just cut off a limb. It's a whole mode of transit for me," said Dan Collison, a south Minneapolis resident who commutes to downtown Minneapolis by bike, transit and Car2Go seven days a week. Because Collison and his family have a variety of transportation options, they were able to get rid of their second car — a sentiment several Car2Go users expressed Friday on Twitter.
But Car2Go said the state's rental rates — which are the same as conventional rental cars — "made the Twin Cities one of the most expensive places in North America to operate our service." The rates made it difficult to offer affordable pricing to members, now at 41 cents a minute for shorter trips, the company said in a statement.
A Car2Go spokeswoman declined further comment. But the company, owned by Daimler North America, made a similar announcement in San Diego on Friday. And it suspended service in Miami this year for the same reason.
Car2Go and conventional car rentals are taxed in the same manner. In Minnesota, the motor vehicle rental tax is 9.2 percent, plus there's an additional 5 percent fee to reimburse lessors for the cost of registering vehicles, according to the Minnesota Department of Revenue. In addition, there's the general state sales tax (currently 6.875 percent), plus other local taxes that apply to leases or rentals of motor vehicles, said Ryan Brown, a spokesman for the revenue department.
A DePaul University study completed in 2016 found the weighted average tax rate for car sharing in the Twin Cities is 22.05 percent, the 10th-highest rate in the country.
"This segment of the 'sharing economy' faces an unusually high tax burden due to the almost universal requirement that carsharers pay the same taxes as those using conventional car rental services," the study concludes. This is due to the "once-prevalent notion that the incidence of taxes on car rentals will fall almost entirely on out-of-towners, including tourists, business travelers and conference-goers."
Rep. Frank Hornstein, DFL-Minneapolis, said there was discussion earlier this year about introducing state legislation that would differentiate taxes between car-sharing services and rental cars. He said he'd be willing to take a look at such a measure in the next legislative session.
"People need options for transportation," said Hornstein, a member of the House Transportation Policy and Finance Committee.
Minneapolis City Council Member Lisa Bender called the decision "unfortunate."
"For a lot of people, it's an option that helps people get rid of their cars," Bender said. She said she wasn't sure whether the city would advocate changing the state's car rental tax rate.
Car2Go currently serves nine U.S. cities, as well as 19 others worldwide. The company said it has just surpassed 2 million members, with growth projected to reach 36 million by 2025.
Last summer, the company pared back service to certain areas of Minneapolis and St. Paul, concentrating on areas that got the most use. The move prompted some grumbling among members and elected officials.
"It is our hope that we might one day resume operations here as taxation policy evolves and more people around the world adopt car sharing to embrace all its economic and environmental benefits," the company said Friday, noting that it regrets "any inconvenience this decision may cause [customers]."
The $35 membership fee will not be refundable to Twin Cities residents.
Other car-sharing services in the Twin Cities include Zipcar and Hourcar, but both use a different business model where cars are returned to the same hub. Ride-sharing services, such as Uber and Lyft, involve drivers using personal cars to transport customers.
Staff writer Eric Roper contributed to this story.