Lyft Sues San Francisco Over Alleged Tax Overcharge Of $100 Million

Lyft sued the City of San Francisco this week, accusing them of overcharging the company $100 million from 2019 to 2023.

According to the lawsuit, Lyft claims that the city taxed the entire app ride fare as revenue, rather than just the company percentage fee of the ride paid by drivers. Lyft said in the suit that this is “distortive and will grossly overstate Lyft’s gross receipts.”

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

“San Francisco’s methodology is distortive and will grossly overstate Lyft’s gross receipts attributable to Lyft’s business activities in the city. 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. Lyft doesn’t take operating in San Francisco for granted and we love serving both riders and drivers in our hometown city. But, we believe the city is incorrect with how it calculated our gross receipts tax for the years 2019-2023.”

The whole taxation suit stems from the infamous AB 5 law, which was signed by Governor Gavin Newsom in 2019 and first put into law in 2020. AB 5  drastically reclassified what both employees and contractors were, including how they are taxed. As rideshare drivers were now classified as employees, and now entitled to benefits, companies quickly filed suits to save ‘gig positions’. Many workers were also against AB 5 as it worked against desirable job perks such as flexible hours. Many exemptions were quickly passed by the courts. However, for rideshare companies, the process took years.

A new $100 million suit

First Proposition 22 came up in November 2020, sending the matter to voters. Voters overwhelmingly passed it, but unions and drivers sued. For years, the matter went back and forth in the courts, until this July when the California Supreme Court finally ruled in favor of upholding Prop 22. In the suit, the company even pointed this part out, saying that drivers are not legally employees.

The city is expected to fight the suit, as paying out $100 million would not be ideal for a city with a budget deficit well over $500 million. However, as of Thursday, the city has only said of the suit that “We will review the complaint and respond accordingly.”

Legal experts noted that the suit is indicative of rideshare companies continuing to rebound following years of concern that AB 5 could stick for them.

“This isn’t a revenge suit or anything like that,” said Lydia Pastore, a Los Angeles lawyer who has many rideshare drivers as clients, to the Globe on Thursday. “But it certainly is helping them now. They uncovered what the city taxed them, they saw they were legally wronged, now they are suing.

“And $100 million is not change. San Francisco would not want to give that back, and Lyft certainly wants something they were overcharged back.

“I will say this though. After AB 5 and all this time fighting Prop 22, proponents  of the reclassification are getting burned more and more by it. San Francisco may have to give back $100 million. And you know that they’ll just love that.”