Lyft Sues San Francisco, Claiming $100 Million Tax Overcharge

Ride-hailing giant Lyft has filed a lawsuit against San Francisco, alleging the city overcharged the company $100 million in taxes over a five-year period. The suit, filed in California Superior Court, claims San Francisco mischaracterized driver compensation as company revenue when calculating tax obligations.

Lyft argues that San Francisco's tax calculations for 2019 to 2023 were based on the total amount paid by passengers for rides, a methodology the company contends misrepresents its business model.

"Lyft considers drivers as its customers," the company states in its complaint. "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."

This tax dispute highlights a broader ongoing controversy surrounding the classification of workers in the gig economy. Companies like Lyft and Uber have been engaged in protracted legal battles globally over worker misclassification and the provision of employment benefits. In California, a 2020 initiative funded by these companies and approved by voters reclassified drivers as independent contractors.

Lyft contends that San Francisco's tax formula, encompassing payroll, gross receipts, and homelessness taxes, violates its constitutional rights by imposing an unfairly burdensome tax liability.

"The city's methodology is distortive and will grossly overstate Lyft’s gross receipts attributable to Lyft’s business activities in the city," Lyft's lawyers wrote in the complaint. They further point out that the US Securities and Exchange Commission does not recognize driver compensation as part of Lyft's revenue, nor is it considered gross income for federal and state income tax purposes.

Lyft seeks refunds for the alleged overpayments, 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 stated in a press release. "But, we believe the city is incorrect with how it calculated our gross receipts tax for the years 2019-2023."

This isn't Lyft's first legal battle regarding tax issues related to its business model. Uber is currently challenging Georgia tax authorities over a similar dispute concerning sales tax collected from drivers. Additionally, General Motors, which operates the Cruise self-driving unit in San Francisco, recently settled a lawsuit against the city for an undisclosed amount over allegations of unfair tax practices.