Car2go leaving Twin Cities, taking its tiny car business somewhere else

Car2go will soon be gone from the Minneapolis-St. Paul market.

Car2go will soon be gone from the Minneapolis-St. Paul market. flickr/Atomic Taco

Car2go, the company behind those adorable blue-and-white energy efficient rental cars, is dropping the Minneapolis-St. Paul market at the end of 2016.

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The company announced on Friday that it would discontinue service to the Twin Cities after three-plus years here. In its statement, Car2go cited high taxes as the root cause of its decision. 

"While we have worked hard to support Car2go in the Twin Cities, our business has been subjected to extremely high state car rental taxation rates," reads the statement.

Minnesota imposes a 9.2 percent tax on rental car purchases, and a 5 percent fee for the charge of leased or rented cars. Only a few states -- Arkansas, Maryland, Nevada, Vermont, and Virginia -- have rental taxes as high as Minnesota's, and none of them levy the 5 percent fee we have here.

Car2go says Minnesota's system meant the Twin Cities is "one of the most expensive places in North America to offer our services" without passing on those fees to consumers through high prices.

Late last year, Car2go announced it would be restricting service to only certain parts of St. Paul; about 85 percent of the city was cut off

Car2go had found some 29,000 willing customers in the Twin Cities (it started service in Minneapolis in 2013, and St. Paul the next year), all of whom will now be looking for a competing tiny car rideshare. The Twin Cities does still have Zipcar, a car-sharing service owned by the Avis Budget Group, as well as Hourcar, a local outfit that provides a variety of car makes and capacities for $8.50 an hour.

Those services make drivers drop their cars back at specific rental locations, whereas Car2go let its drivers leave the vehicles at their destination, for another customer to find.

Rep. Frank Hornstein, DFL-Minneapolis, the Democratic leader on transportation funding in the Minnesota House of Representatives, told the Star Tribune there's been discussion about splitting the rental tax scheme in two, to differentiate between traditional rentals and ride-share programs like Car2go. He said the same idea might resurface in the coming session.

The Bluestem Prairie blog notes that any effort to cut those tax revenues next year looks like a longshot, especially if Minnesota Republicans -- who now hold majorities in both House and Senate -- are sticking to the same transportation plan they had before.

Republican members are desperate to avoid any kind of a gas tax to pay for transportation infrastructure, and in fact relied on rental taxes to pay for capital improvements in the metro areas and to fill a "small cities account."