Federal Appeals Court Upholds Colorado’s $3 Rental Car Fee

A federal appeals court has upheld Colorado’s $3-per-day congestion impact fee on short-term vehicle rentals, rejecting a challenge brought by the American Car Rental Association (ACRA).

In a 2-1 decision filed July 27, the U.S. Court of Appeals for the 10th Circuit concluded that the fee is imposed on consumers, while rental companies and carsharing platforms serve as collection agents.

That distinction placed the fee outside the scope of the federal Anti-Head Tax Act, according to the court’s majority.

The federal law prohibits states from imposing certain taxes, fees, or charges on businesses located at commercial airports unless the revenue is used for airport or aeronautical purposes. Congress expanded those restrictions in 2018 amid concerns about state and local governments targeting airport businesses, including car rental operations, to fund unrelated projects.

“Colorado imposes the Fee on consumers,” Circuit Judge Scott Matheson wrote for the majority. “The AHTA prohibits a fee ‘upon any business located at a commercial service airport.’ It therefore does not apply to the Fee and does not preempt the Colorado law.”

Fee Applies Statewide

Colorado enacted the congestion impact fee in 2024 and began collecting it Jan. 1, 2025. It applies to vehicle rentals lasting no more than 30 days and involving vehicles with a gross vehicle weight rating of 26,000 pounds or less. The law covers passenger vehicle rentals, moving trucks, and qualifying carsharing transactions throughout the state, not only rentals originating at airports.

Revenue from the fee is directed toward surface transportation projects intended to reduce congestion, expand transportation options, and improve the reliability and useful life of Colorado’s highways and bridges.

ACRA argued that the fee violated federal law because a large portion of the state’s rental transactions take place at airports and the proceeds are not reserved for airport-related projects. Approximately half of Colorado’s rental transactions occur at airport locations, according to facts cited in the case.

The association also argued that rental companies bear the legal liability for the fee because they must file monthly returns and submit payment to the Colorado Department of Revenue, regardless of whether they successfully collect the money from customers.

The majority disagreed, comparing the arrangement to state sales taxes that businesses collect from consumers and remit to the government. The judges interpreted the statute’s reference to “fee payers” as meaning the people renting the vehicles and benefiting from the transportation projects funded by the revenue.

Appeals Court Uses Different Reasoning

The appeals court affirmed the federal district court’s earlier ruling by U.S. District Judge Daniel Domenico, although it relied on a different legal rationale.

The district court had focused on whether the fee was “generally imposed on sales or services.” It concluded that the fee was permissible because it applies to short-term rentals statewide rather than discriminating between airport and off-airport rental businesses.

Because the appeals court determined that the fee is imposed on consumers, its majority did not decide whether a charge applying only to short-term rentals qualifies as a generally imposed fee under federal law.

Dissent Says Rental Companies Bear the Fee

Circuit Judge Allison Eid dissented, arguing that Colorado’s statutory structure places the financial obligation on rental companies rather than consumers.

Eid noted that the law does not expressly require rental companies to pass the congestion impact fee along to customers or list it separately on rental invoices. Companies nevertheless must calculate and remit the amount due to the state.

“Colorado assesses and exacts payment of the Fee from car rental companies, not consumers — a ‘levy’ upon airport businesses,” Eid wrote.

She also rejected the state’s position that the fee is generally imposed because it applies to all short-term rentals. In her view, a fee targeting only one type of service does not satisfy the federal law’s exception for charges generally imposed on sales or services.

The ruling leaves Colorado’s congestion impact fee in effect statewide. The case is American Car Rental Association v. Humphreys, No. 25-1246.