Is it possible to evade travel taxes?

By now, just about everyone knows that travelers have become a happy hunting ground for various government agencies scratching for additional tax revenues. The big advantage, of course, is that in many cases, the people who are being taxed don’t vote in the jurisdictions that tax them. Taxation without representation—I think I’ve heard that somewhere before. Given the difficulty of voting down taxes, most of us are forced instead to find ways of avoiding them.

A reader recently asked about countries in which he could avoid taxes on air tickets and other travelers’ purchases. The quick answers to this reader are, “No, you probably can’t avoid air ticket taxes” and, “Yes, you can avoid some other taxes.”

Air ticket taxes

Almost all of the taxes and fees on air tickets are passed along directly to governments and airports to cover the costs of various traveler services—airport construction and operation, customs, immigration, and such. No matter where you buy your ticket, airlines are required to collect these taxes and fees. About the only tax that doesn’t follow this pattern is the U.S. domestic ticket tax—but that doesn’t apply to international flights.

VAT refunds

Many of the world’s economically advanced countries—notably those in Europe—rely on a “value-added tax,” or VAT, as a major source of national revenue. Although computed a bit differently, VAT is basically a variant on a national sales tax, adding as much as 25 percent to the retail price of goods and services. Countries often waive the VAT for exports, and since they regard sales to tourists as “exports,” tourists are entitled to a refund of the VAT they pay.

In Europe, ordinary tourists can claim VAT refunds only on purchases of goods, such as souvenirs. Since hotel accommodations, restaurant meals, and other services are deemed to be consumed locally rather than exported, the European countries don’t provide for refunds on those purchases. (Business travelers can get VAT refunds on those services, but that’s a different—and much more complicated—story.)

The easiest way to deal with VAT refunds is through a program run by Global Refund, a Swedish company that has established a multinational refund system. Participating merchants prominently post “Tax Free Shopping” signs in windows and elsewhere. When you buy something, the retailer prepares the required paperwork. Each European country has established a minimum-purchase amount to qualify for a refund, running from around $50 in Norway to more than $200 in France.

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When you leave the European Economic Community (EEC), or any individual non-EEC country, you exchange your paperwork for cash or a credit to your charge card. Global Refund maintains desks at major airports and railway boundary points. You must show the goods (don’t bury them in your baggage) to prove they’re really exported. Obviously, Global Refund takes a piece of the action, but using its system is much easier than trying to cope individually. Global Refund also operates similar systems in Argentina and Korea.

Canada also allows VAT refunds on hotel accommodations as well as goods, but not on meals and local transportation. Refund rates are either seven percent or 15 percent, depending on the specific expenditure. To qualify for a refund you must spend at least C$50 on each individual transaction and a total of at least C$200. You can find full details at the Canada Revenue Agency’s website.

Rental car taxes

The highest tax rates you’re likely to find anywhere these days are on rental cars. Taxes can sometimes add up to more than the base rental rate. Since many of those taxes are confined to rentals that begin at an airport, you can often reduce the rate significantly by renting off-airport. At some high-tax airports you can cut as much as $20 a day off the bottom-line cost by renting off-airport.

The catch, of course, is that renting off-airport means you have to go off the airport. That means a taxi or some other form of public transport to get to the rental location—as well as up to an extra hour, extra hassling with baggage, and the costs of getting to the off-airport location. Also, while airport rentals operate 24/7 at big airports and extended hours at smaller ones, off-airport rental locations may be strictly “business hours.” The main saving grace is that no matter where you rent the car you can probably return it at the airport with no extra cost.

Keep in mind, however, that off-airport isn’t always your best deal. The last time I rented a car in Washington, D.C., I found the rate was something like $20 a day less at National Airport than at the downtown office.

Whenever you see a rental with a huge tax load, always check how much you might cut the cost by renting off-airport. If the answer is a large enough number to offset the additional hassles, go for it; otherwise, accept the taxes as yet another of the many annoyances facing travelers.