Lyft says San Francisco overcharged it by $100 million in taxes

Last week, Lyft accused San Francisco of bilking it of more than $100 million in taxes over the past five years.

In the complaint, Lyft, which is headquartered in the city, said the fees paid to drivers are not part of the company’s revenue and should not be taxed. The company considers its drivers customers, not employees, the company said.

“Lyft does not treat drivers as employees for any purpose,” the complaint states. “Lyft acts as a broker/intermediary in transactions between drivers and passengers, and therefore its taxable gross receipts should be limited to the amounts charged to drivers for using the 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 ridesharing revenue consists of fees paid by Lyft drivers, not fees passengers pay to drivers,” the complaint, filed in San Francisco Superior Court, says.

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

“Lyft doesn’t take working in San Francisco for granted, and we love serving both passengers and drivers in our hometown,” the company said in a statement. “We believe the city has miscalculated our gross receipts tax. … We filed this lawsuit to help resolve this issue.”

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

“We will review the complaint and respond accordingly,” said Jen Quart, a spokeswoman for the San Francisco City Attorney.

This is not the first time the company has challenged San Francisco’s high taxes. Last year, the Detroit automaker General Motors sued the city for more than $100 million in back taxes, claiming the taxes were miscalculated.

Lyft’s lawsuit comes amid a debate over how to classify ride-hailing drivers and how to tax ride-hailing companies like Lyft and Uber. Lyft’s complaint notes that neither the U.S. Securities and Exchange Commission nor federal tax authorities consider driver compensation part of the company’s revenue.

Ride-hailing companies classify their drivers as independent contractors in the United States, not as employees, meaning the companies do not have to provide certain employee benefits, such as sick leave and overtime pay.

Unions fighting for better working conditions say drivers are being labeled improperly, but have lost a court battle in California over the issue this year. The Supreme Court of California supported a voter initiative known as Proposition 22 that would have allowed companies like Lyft to classify their workers as contractors, a law that ride-hailing services say is vital to their business model.

Lyft has also come under scrutiny from the federal government over allegations that it made false and misleading claims about how much its drivers would earn. In November Elevator agreed to pay a $2.1 million civil penalty to settle the charges.