Lyft accuses San Francisco of overcharging $100 mn for taxes over 5 years

By Robert Burnson

 

Lyft Inc. accused the city of San Francisco in a lawsuit of overcharging it $100 million for taxes over five years by unfairly characterising the compensation earned by drivers who use its app as company revenue.

 

The company said its hometown calculated its taxes from 2019 to 2023 based on the total amount of money that passengers paid for rides. But Lyft said that isn’t how its business model works. 

 

“Lyft considers drivers as its customers,” the company said in the complaint filed in state court. “Accordingly, Lyft recognizes revenue from rideshare as being comprised of fees paid to Lyft by drivers, not charges paid by riders to drivers. Lyft does not treat drivers as employees for any purpose.”

 

The tax dispute points to a broader, yearslong controversy around how Lyft, Uber Technologies Inc. and other so-called gig economy firms rely on contractors and avoid having to provide employment benefits. The companies have collectively spent hundreds of millions of dollars to settle claims in the US and abroad that they have misclassified workers without reaching a permanent global resolution. In California, drivers were deemed independent contractors under a 2020 initiative that the companies funded and voters approved in 2020.

 

Lyft said San Francisco’s formula for assessing payroll, gross receipts and homelessness taxes has violated the company’s constitutional rights by forcing it to pay far more than its fair share.

 

The city’s methodology is “distortive and will grossly overstate Lyft’s gross receipts attributable to Lyft’s business activities in the city,” the company’s lawyers wrote. They noted that the US Securities and Exchange Commission doesn’t consider driver compensation as part of Lyft’s revenue, nor is it recognized as gross income for federal and state income tax purposes. 

 

The company is seeking refunds for the amounts it says it overpaid, including interest, penalties and fees.

 

“Lyft doesn’t take operating in San Francisco for granted and we love serving both riders and drivers in our hometown city,” the company said in a statement. “But, we believe the city is incorrect with how it calculated our gross receipts tax for the years 2019-2023.”

 

Representatives of the San Francisco City Attorney’s office didn’t respond to a request for comment.

 

It’s not the first lawsuit faulting tax authorities for misconstruing the ride-hailing business model. Uber is challenging Georgia tax authorities over about $9 million in sales tax the company says should have been collected from drivers. The company’s arguments got a wary reception from a state appeals court panel this month.

 

General Motors Co. last year accused San Francisco in a lawsuit of unfairly taxing it $108 million over seven years, despite the automaker having very low sales and almost no personnel in the city. The company said the city used the presence of its Cruise self-driving unit to tie its tax bill to a portion of GM’s global revenue. The case settled for undisclosed terms in February.

 

The case is Lyft Inc. v. City and County of San Francisco, CGC24620845, California Superior Court (San Francisco).