Lyft says San Francisco overtaxes it by $100M

Ride-hailing company Lyft accused San Francisco of overtaxing it by $100 million over the past five years in a lawsuit filed last week.

Lyft, headquartered in the city, said in its complaint that the fees passengers pay to drivers are not part of the company’s revenue and should not be taxed. The company said it views its drivers as customers, not employees.

“Lyft does not treat drivers as employees for any purpose,” the complaint said. “Lyft acts as a broker/intermediary in transactions between drivers and passengers, and therefore its gross taxable receipts should be limited to amounts collected from drivers for use of marketplace services.”

Lyft makes most of its money from the fees it charges drivers. It also generates some revenue from other sources, including subscriptions and advertising.

“Lyft acknowledges that revenue from ridesharing consists of fees paid to Lyft by drivers, not fees paid by passengers to drivers,” the complaint filed in San Francisco Superior Court said.

Lyft said San Francisco mistakenly included driver income as part of Lyft’s revenue when calculating taxes from 2019 through 2023. The company wants a refund of overpaid taxes, as well as interest and penalties.

“Lyft does not take operating in San Francisco lightly, and we love serving riders and riders in our hometown,” the company said in a statement. “We believe the way the city calculates our gross receipts tax is incorrect. … We filed this lawsuit to help correct this problem.”

Lyft called San Francisco’s tax methodology “stunning” and is awaiting an official response from the city.

“We will review the complaint and respond accordingly,” said Jen Kwart, a spokeswoman for the San Francisco city attorney.

This isn’t the first time a business has objected to a high tax bill from San Francisco. Last year, the Detroit automaker General Engines sued the city in an attempt to recoup more than $100 million in back taxes, claiming the taxes were miscalculated.

The Lyft case comes amid debate over how ride-hailing drivers should be classified and how gig economy companies like Lyft and Uber should be taxed. Lyft’s complaint states that neither the U.S. Securities and Exchange Commission nor federal tax authorities consider driver compensation as part of company income.

Ride-hailing companies classify their drivers as independent contractors rather than employees in the US; This means companies do not have to provide workers with certain benefits, such as sick leave and overtime pay.

Unions fighting for better working conditions say drivers were improperly tagged but lost a legal battle over the issue in California this year. California Supreme Court Approved a voter initiative known as Proposition 22, which would allow companies like Lyft to classify their workers as contractors; says legal ride-hailing services are vital to their business model.

Lyft has also come under scrutiny from the federal government over allegations it made false and misleading statements about how much its drivers would earn. in November, Lyft agreed to pay a $2.1 million fine to resolve the charges.