The underlying objective of House Bill 8 - the House Republican’s comprehensive tax reform legislation - is to shift the state’s tax code from taxing income to taxing consumption. That principle has been a major tenet of conservative, pro-growth economic policy for decades. Kentucky’s moment to do something bold may have finally arrived.

The selection of the services that would be incorporated into the tax base by the authors of the legislation reveals they understand the fundamentals in today’s economy. Their rejection of the special treatment sought by rental car companies also shows those legislators understand the benefit a level playing field provides entrepreneurs and innovators - even in the face of aggressive lobbying from a well-connected industry.

In an October policy point, we demonstrated that the rental car industry’s effort to single-out peer-to-peer car sharing with new taxes was a classic case of rent-seeking and an attempt to manipulate public policy to impede newcomers from gaining a foothold in the marketplace.

HB 8 would levy a 6% excise tax on the whole spectrum of transportation services: rental cars, peer-to-peer car sharing, ride sharing, taxicabs and limousine services. Each player in that competitive market is treated the same.

Peer-to-peer entrepreneurs will continue to pay the usage tax when purchasing their vehicles. Rental car companies retain the option of paying the usage tax on their fleet purchases themselves or passing it on to their customers through the “U-Drive It” program (which they do).

In their quest to convince legislators to apply the new 6% excise tax to their peer-to-peer competition while granting their industry an exemption, the rental car industry employed a number of misleading talking points. Let’s examine their claims:

Claim: Peer-to-peer car sharing services don’t pay into the Road Fund.
Fact: Peer-to-peer entrepreneurs pay the state mandated 6% usage tax on the purchase price of their vehicles; 100% of the usage tax goes to the Road Fund.

Claim: Rental car companies and peer-to-peer car sharing services are not taxed in the same way, which creates an unfair advantage for P2P services.
Fact: The rental car companies have the option of paying the usage tax on the vehicles they purchase for their fleet. Instead, rental car companies choose to pass their usage tax obligations onto consumers through the “U-Drive It” program. They could achieve their idea of “fairness” by opting to pay the usage tax themselves but don’t.

Claim: The growth of peer-to-peer car sharing services will deny resources to the Road Fund.
Fact: Entrepreneurs realizing success from peer-to-peer car sharing could purchase additional vehicles to put into service. The Road Fund will benefit from the usage tax revenues generated from that growth.

Myth: Peer-to-peer services will increase the number of vehicles on the road. Peer-to-peer consumers should contribute to the Road Fund the same as they would if they were renting a car from a rental car company.
Fact: Drivers will pay the same motor fuels tax when fueling up whether it’s a peer-to-peer vehicle or a rental company vehicle. Those fuel taxes are deposited in the Road Fund.

Legacy industries fearing competition tenaciously lobby government to create barriers to entry intended to hinder entrepreneurs from becoming a threat to their market share. The General Assembly should do everything it can to support small businesses, not suppress it with more regulation and punitive taxation.

Tax reform shouldn’t be a vehicle to reward rent-seeking. By not picking winners and losers, HB 8 takes the right approach on transportation services.