Ride-share giant Lyft has taken legal action against the city of San Francisco, alleging that the municipality has unfairly levied $100 million in taxes on the company between 2019 and 2023. The lawsuit filed by Lyft asserts that the city’s tax assessment does not accurately reflect the company’s operational structure.
Lyft contends that its primary revenue stream is derived from a percentage of the fare paid by passengers, with drivers receiving a minimum of 70% of these payments. The company’s legal filing emphasizes that revenue from ride-sharing is based on fees paid by drivers to Lyft, not charges from passengers to drivers. Moreover, Lyft maintains that drivers are not considered employees for any business-related purposes.
The crux of the issue, as outlined in the lawsuit, lies in the city’s calculation method for apportioning taxes. Lyft argues that excluding driver payments from the equation distorts the assessment, resulting in a significant overestimation of Lyft’s gross receipts attributable to its operations within San Francisco.
Furthermore, Lyft claims that San Francisco employs inconsistent criteria when classifying the company’s business activities for tax purposes. The taxes in question include the Gross Receipts Tax, Homelessness Gross Receipts Tax, Traffic Congestion Mitigation Tax, and business registration fees.
This legal maneuver by Lyft comes in the wake of California’s passage of Assembly Bill 5 (AB 5), which brought about a reclassification in how independent contractors and employees are taxed and categorized. Governor Gavin Newsom, in a letter to California Assembly members prior to the bill’s enactment, highlighted the importance of addressing worker misclassification to safeguard fundamental labor protections such as minimum wage, paid sick leave, and health insurance benefits.
AB 5 mandated that ride-sharing companies treat their drivers as employees obligated to provide health insurance coverage. However, California voters overturned this mandate by approving California Proposition 22 in 2020, with 59% in favor. This ballot measure effectively restored the independent contractor status for ride-sharing app drivers and delivery personnel.
Lyft heavily invested in promoting the passage of Proposition 22, reportedly spending $47.5 million towards this advocacy effort. Despite the voter approval, legal challenges ensued, culminating in a pivotal ruling by the California Supreme Court in July 2024 affirming the classification of gig workers as independent contractors rather than employees.
San Francisco finds itself grappling with a substantial budget deficit nearing $1 billion, a situation previously reported by The Center Square. In response, S&P Global Ratings downgraded the city’s credit rating in December 2024, underscoring the economic challenges faced by the municipality amidst ongoing tax disputes and regulatory changes impacting the gig economy.
