No rental tax for Flexcar — for now

The state Department of Revenue has agreed to defer the car-rental tax it said it would begin imposing on Flexcar, the car sharing company.

A day after the department announced that Flexcar would have to pay a 9.7 percent car rental tax, Gov. Christine Gregoire sent a letter to the department suggesting that Flexcar should not be taxed.

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

Last 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.

But in a memo issued Monday, Flexcar said, "Flexcar and the Department of Revenue have been in discussions on resolutions to this issue. As a result, for the time being, we are deferring collection of the tax."

There's no decision yet on how the controversy may be resolved, but it may include legislation that exempts car-sharing organizations from the tax.

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