Will state bend for Flexcar?

Users of Flexcar, the national car-sharing company, might not have to pay a car-rental tax after all.

Gov. Christine Gregoire, in a letter sent Friday to the director of the state Department of Revenue, suggested Flexcar should not be taxed, as the department said it should.

Gregoire stopped short of ordering the department not to collect the tax, but said in her letter, "I believe our tax code should act as an incentive, not a hindrance, to innovation."

Mike Gowrylow, spokesman for the Department of Revenue, said, "The governor didn't say we shouldn't collect the tax, but that it creates an issue that needs to be resolved."

Still, he said, the law gives the department little leeway in not imposing the tax. "There may be some way to resolve this we haven't thought of yet," said Gowrylow, adding that the tax collection is still scheduled to begin Oct. 1.

In July, the Revenue Department sent an advisory that said car-sharing organizations, such as Flexcar, are providing rental cars and are required to collect the car-rental tax. In King County, where virtually all Flexcars in the state operate, that would mean a 9.7 percent increase to the cost of the car, adding about a dollar to the typical $10 hourly charge members pay.

Flexcar complained that the tax was unfair because it was targeting local residents who already pay taxes, and that it punishes a company trying to get cars off the road and people into buses.

The Revenue Department asserted that Flexcar, which began in Seattle in 2000, is a car-rental business and, as one, should be taxed. There is the possibility the state could try to recover unpaid taxes for the past three years.

In her letter, Gregoire said Flexcar "is a nationally recognized innovative alternative to vehicle ownership." She said it helps reduce congestion and achieve growth-management strategies.

She asked Revenue Director Cindi Holmstrom to work with Flexcar "to determine the appropriate course of action to support the viability of these companies and ensure access for consumers."

"What a great letter to get from the governor," Flexcar spokesman John Williams said Friday. Williams said Flexcar has about 20,000 members and the new tax would be hard on the company, which was ordered to collect it.

Gowrylow said the department will work with Flexcar to explore solutions, which may include legislation that exempts car-sharing organizations from the car-rental tax.

"This was a directive to work on the problem, and that's what we'll do," he said. "We'll take a long, hard look at the industry and see how it differs from the car-rental industry and see if we can develop a solution. [The governor] recognized that car-sharing organizations are a special breed, and we need to see if we can find any wiggle room."

Susan Gilmore: 206-464-2054 or sgilmore@seattletimes.com