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Hertz Strains Mightily Against Airport Tax

CHICAGO (CN) - Hertz claims Chicago's tax on rental-car transactions outside city limits is unconstitutional. The challenge to "extraterritorial taxation" obviously is aimed at rentals at O'Hare Airport - 80% of U.S. car-rental revenue comes from airports - though the 24-page complaint minces delicately around that.

Hertz challenges an amendment to Chicago tax law which "requires any person who rents a car outside of Chicago's city limits to pay the Chicago Transaction Tax on the rental, unless that person can provide documentary proof at the outset of the rental that the car will not be used more than 50 percent of the time ('primarily') in the city. Rental car businesses like Hertz have the burden of collecting this tax for their non-Chicago based rental transactions unless they can prove with documentary evidence that the vehicles rented were not primarily used in Chicago."

Hertz claims that imposes onerous paperwork burdens upon it, and that it's not clear whether someone who rents a car in, for instance, Poughkeepsie, will have to prove she won't spend most of her time in Chicago. It says that failure to pay the transaction tax or maintain records is punishable by interest charges of up to 12 percent and 50 percent in penalties, fine and liens, or even incarceration.

Hertz says it paid Chicago $7.1 million in transaction taxes in 2009, and claims that workers at its 1,900 nationwide outlets could be threatened with jail time unless it caves.

Hertz, which controls 26 percent of the U.S. car rental market, specifically objects to language in the Chicago law that would impose the tax "on car-rental transactions that occur outside of the City, so long as the rental company also does business within the City."

Hertz claims that under that ruling, it will be forced to collect the transaction taxes "from lessees nationwide," and send the money to Chicago, or do the paperwork to show the cars didn't spend most of their time in Chicago.

It claims that Chicago does not clearly specify what type of documentation or records are required for exemption, but that Hertz "does not require its customers to state where they intend to use their rental vehicles," and it is not aware of any car-rental businesses that does.

"In order to provide superior customer service by minimizing the amount of time its customers spend filling out paperwork, and to protect the privacy of its customers, Hertz's policies call for collecting only the minimal amount of information necessary from customers," it says.

The complaint does not mention O'Hare International Airport until its 46th paragraph. O'Hare is outside Chicago city limits, and Hertz's complaint obviously aims to fight taxes there rather than the threat for Chicago to tax car rentals at Yuma or Seattle.

Hertz sued Chicago over the tax in December 2009 - in nearby DuPage County, also outside Chicago - claiming the tax was unconstitutional. In response, Chicago agreed not to impose the tax on any car rental made more than 3 miles outside the city limits, "excluding that portion of the city's borders composed of the boundaries of O'Hare International Airport," the complaint states, citing an Jan. 13, 2010 letter to Hertz from Chicago.

Hertz claims the tax amendment imposes onerous burdens upon it, that in order to comply, it would have to "(1) obtain legal advice to ensure such a system complied with all relevant privacy and consumer laws; (2) design an information technology system in conformity with applicable rules and regulations; (3) train personnel at locations outside of the City on these new procedures; (4) develop a public relations strategy for responding to the inevitable consumers complaints; and (5) implement new administrative and accounting processes to collect and remit the tax to the City and begin keeping files on where its customers use their rental vehicles."

These changes would put Hertz at a "competitive disadvantage" to rental companies that do not do business in Chicago, it says.

(That argument too is somewhat vitiated by reality, as only about 2 percent of car rental companies do not do business in Chicago. See story on today's Courthouse News page, "Avis-Dollar Merger Fought on Antitrust Grounds.")

Hertz wants the tax enjoined as unconstitutional. Its lead counsel is Ross Bricker with Jenner & Block.

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