Lyft says San Francisco overcharged it $100 million in taxes, according to lawsuit

The ride-hailing company Lyft accused San Francisco of overcharging it $100 million in taxes over the last five years in a lawsuit filed last week.

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

“Lyft does not treat drivers as employees for any purpose,” the complaint said. “Lyft serves a broker/middleman role in the transaction between drivers and riders, and as such, its taxable gross receipts must be limited to the amounts charged to drivers for use of its marketplace services.”

Lyft makes the bulk of its money from the fees it charges drivers. It also brings in some revenue from other sources, including subscriptions and advertising.

“Lyft recognizes revenue from rideshare as being comprised of fees paid to Lyft by drivers, not charges paid by riders to drivers,” said the complaint, filed in San Francisco Superior Court.

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

“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. “We believe the city is incorrect with how it calculated our gross receipts tax. … We filed this lawsuit to help correct this issue.”

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Lyft called San Francisco’s tax methodology “distortive” and is waiting for a formal response from the city.

“We will review the complaint and respond accordingly,” said Jen Kwart, a spokesperson for the San Francisco city attorney.

This isn’t the first time a business has disputed a high tax bill from San Francisco. Last year, Detroit automaker General Motors sued the city, seeking to recoup more than $100 million in back taxes, claiming the taxes were improperly calculated.

The Lyft lawsuit comes amid debate over how ride-hailing drivers should be classified and how gig economy companies such as Lyft and Uber should be taxed. Lyft’s complaint notes that neither the U.S. Securities and Exchange Commission nor federal tax authorities consider driver compensation as part of company revenue.

Ride-hailing companies classify their drivers as independent contractors in the United States instead of employees, meaning the companies don’t have to provide workers certain benefits such as sick leave and overtime pay.

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

Lyft has also faced scrutiny from the federal government over allegations that it made false and misleading statements about how much its drivers would earn. In November, Lyft agreed to pay $2.1 million in civil penalties to resolve the accusations.