10th Circuit Affirms Colorado's $3‑a‑Day Rental Car Congestion Fee

A three‑judge panel of the 10th U.S. Circuit Court of Appeals on Tuesday rejected a lawsuit brought by major rental‑car firms and upheld Colorado’s $3‑a‑day congestion surcharge on rental vehicles. The ruling keeps the fee in place while the state continues to use the revenue for road‑improvement and public‑transit programs.

Core developments

The appellate panel, divided 2‑1, concluded that the surcharge is a lawful “user fee” rather than an impermissible tax. The court said Colorado’s 2022 Transportation Finance Act, which created the fee, fell squarely within the state’s authority to fund transportation infrastructure. The decision affirms a lower‑court ruling that had dismissed the rental‑car companies’ challenge on procedural grounds and rejected their claim that the fee violated the Commerce Clause.

Rental‑car companies—including Avis, Hertz, Enterprise and others—argued that the surcharge discriminated against out‑of‑state businesses and amounted to a tax that required voter approval. The 10th Circuit rejected those arguments, noting that the fee applies uniformly to any rental car used on Colorado roads, regardless of the renter’s residence, and that the state has long treated similar surcharges as permissible user fees.

Judge Jeremiah P. Wilson authored the majority opinion, writing that the fee “is not a tax but a charge for the use of a public resource.” He pointed to Colorado’s statutory language, which ties the surcharge to the cost of mitigating congestion and financing transit projects, as evidence that the fee serves a specific public purpose.Reuters

Judge Carlos Samour joined the majority, emphasizing that the state’s authority to impose the fee does not hinge on the exact allocation of the proceeds, a question the court left for future litigation. The dissenting judge warned that the fee could be perceived as a barrier to interstate commerce and urged a more thorough analysis of its economic impact.Colorado Politics

Law360 noted that the decision is limited to the fee’s legality; it does not resolve ongoing disputes over how the collected money is distributed among Denver’s transit authority, the Colorado Department of Transportation and regional planning agencies.Law360

Why it matters

The surcharge is a cornerstone of Colorado’s strategy to address chronic traffic congestion in the Denver metro area and to fund expanding public‑transit options. The $3‑a‑day fee, applied to every rental car each day it is on Colorado roads, is projected to generate roughly $30 million annually, according to state estimates.U.S. News & World Report This revenue supplements a broader financing package that includes a vehicle‑miles‑traveled (VMT) tax and traditional fuel taxes.

By preserving the fee, the court ensures that Colorado can continue to invest in projects such as light‑rail extensions, bus rapid‑transit corridors and highway improvements aimed at reducing bottlenecks on I‑25 and other heavily traveled routes. Transportation analysts have warned that without dedicated funding, the state could face a widening gap between infrastructure needs and available resources, especially as electric‑vehicle adoption reduces fuel‑tax receipts.

The ruling also signals how federal courts may treat similar “user fees” elsewhere. As more states explore congestion‑pricing mechanisms to fund climate‑friendly transit, the 10th Circuit’s interpretation of the Commerce Clause could serve as persuasive authority in future disputes.

Reactions

Colorado’s Department of Transportation hailed the decision as a victory for “sustainable mobility.” A spokesperson told local media that the state will continue to collect the surcharge while it works with the Colorado Department of Revenue to refine the distribution formula for the proceeds.Reuters

Rental‑car industry groups expressed disappointment, saying the decision “underscores the need for clearer congressional guidance on state‑level congestion fees.” They reiterated their intention to pursue further legal avenues, potentially appealing to the U.S. Supreme Court.Investing.com

Legal scholars in Denver noted that the split decision reflects a broader tension between state innovation in transportation financing and concerns about interstate commerce. Professor Emily Hart of the University of Colorado Law School remarked that the majority’s reliance on the “user fee” label may invite future challenges focused on the fee’s actual impact on out‑of‑state businesses.Colorado Politics

What’s next

The Colorado legislature is expected to introduce a bill later this year to clarify the fee’s revenue‑allocation formula, aiming to address the concerns raised in the dissenting opinion. Meanwhile, the rental‑car companies have indicated they will explore whether the case can be reheard en banc or taken to the Supreme Court, though no filing deadline has been set.

Transportation officials say the state will monitor the surcharge’s collection closely, with quarterly reports to the governor’s office beginning in the first quarter of 2027. If the fee continues to generate the projected revenue, Colorado could accelerate planned projects, including the extension of the A Line commuter rail and the construction of dedicated bus lanes on major arterials.

Beyond Colorado, the decision may embolden other jurisdictions considering similar fees. Cities such as Seattle and Austin have floated congestion‑pricing proposals that could face legal scrutiny. Observers will watch how the 10th Circuit’s reasoning is cited in those debates, especially as federal courts grapple with the balance between state revenue needs and the constitutional limits on interstate commerce.