San Francisco faces legal pushback from Lyft over controversial gross receipts tax

San Francisco, California – Claiming it has been overcharged by about $100 million in taxes, popular ride-hailing company Lyft is suing the City of San Francisco. From 2019 to 2023, the lawsuit—which was filed in the California Superior Court in San Francisco—challenges the city’s tax calculating approach over the past five years.

Rather than on the fees drivers pay to Lyft, San Francisco has mistakenly calculated the taxes based on the total fares passengers pay, Lyft claims. This, Lyft explaines, does not fairly represent the income stream of the business. According to the company’s website, drivers keep at least 70% of the fare, implying that Lyft’s real profits are a small percentage of the gross passenger fares.

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Legal filings from Lyft highlight that it sees drivers as customers using its platform to offer transportation services, not as employees. This classification is important since it affects the definition and taxation of Lyft’s income. The complaint argues that the city’s tax computation system is distortive and significantly overstates the gross receipts due to Lyft’s corporate operations within the city.

“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 to Bloomberg. “But we believe the city is incorrect with how it calculated our gross receipts tax for the years 2019-2023.”

As Lyft pointed out in its complaint, the U.S. Securities and Exchange Commission does not count driver fees as part of its revenue. For income-tax purposes, both state and federal levels likewise see these fees as not income.

Alex Barrett-Shorter, a San Francisco City Attorney’s office spokesperson, responded to the complaint saying the city will go over it and act accordingly.

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This legal challenge fits into a larger conversation about American gig workers’ classification under law. Uber and DoorDash among ride-hailing and delivery services classify their drivers as independent contractors rather than employees. These businesses are spared the financial obligations associated with employee status such as health insurance, vacation compensation, and overtime by this designation.

This issue of worker classification continues to be contentious. Although a California appeals court decided last year in favor of gig companies and let them categorize their employees as independent contractors, foreign decisions have varied. Following a protracted court fight, the UK, for instance, demanded that Uber classify its drivers as employees in 2021.

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As this litigation develops, it could set standards for how digital platforms are taxed and how they treat their employees, therefore influencing the overall gig economy sector.