Lyft accuses San Francisco of overcollecting $100 million in taxes

(Bloomberg) — Lyft Inc. accuses the city of San Francisco in a lawsuit of overcollecting $100 million in taxes over five years and unfairly treating the pay from drivers who use its app as company income.

The company said its hometown calculated taxes from 2019 to 2023 based on the total amount paid by passengers for rides. But Lyft says that’s not how its business model works.

“Lyft treats its drivers as its customers,” the company said in a complaint filed in state court. “As a result, Lyft recognizes rideshare revenue to include fees paid by drivers to Lyft, not fees paid by passengers to drivers. Lyft does not treat drivers as employees for any purpose.”

The tax dispute adds to a broader, years-long dispute over how Lyft, Uber Technologies Inc. and other so-called gig economy companies rely on contractors and avoid providing employment benefits. Collectively, the companies have spent hundreds of millions of dollars to resolve U.S. and foreign accusations that they misclassified workers, but no permanent global resolution has been reached. In California, drivers are considered independent contractors under a 2020 initiative funded by the company and approved by voters in 2020.

Lyft says San Francisco’s formula for assessing wages, gross receipts and homelessness taxes violates the company’s constitutional rights, forcing it to pay far more than its fair share.

The company’s attorneys wrote that the city’s calculation method is “distorting and would materially overstate the total revenue generated by Lyft’s business activities in the city.” They noted that the SEC does not consider driver compensation to be part of Lyft’s revenue or gross income for federal and state income tax purposes.

The company is seeking a refund of the amount it claims it overpaid, including interest, penalties and fees.

“Lyft does not take operating in San Francisco for granted and we love serving our riders and drivers in our home city,” the company said in a statement. “However, we believe the city’s calculation of the 2019-2023 gross receipts tax is The way is not right.”

Representatives from the San Francisco City Attorney’s Office did not respond to requests for comment.

This is not the first lawsuit accusing tax authorities of misunderstanding the ride-hailing business model. Uber has challenged Georgia tax authorities to collect about $9 million in sales taxes it says it should have collected from drivers. The company’s arguments were met with caution by a state appeals court panel this month.

General Motors accused San Francisco in a lawsuit last year of unfairly taxing it $108 million over seven years, even though the automaker had very low sales and had few employees in the city. The city leveraged the presence of its Cruise self-driving unit to tie its tax bill to a portion of GM’s global revenue, the company said. The case was settled in February for undisclosed terms.

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

(Updates Lyft comments in eighth paragraph.)

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