Lyft says San Francisco overcharged by $100 million in fees

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

Lyft, which is based in the city, said in the complaint that fees paid by riders 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 says. “Lyft acts as a broker/intermediary in transactions between drivers and passengers, and as such, its gross taxable receipts must be limited to the amounts charged to drivers for using its services in the marketplace.”

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

“Lyft recognizes ridesharing revenue as consisting of fees paid to Lyft by drivers, not fees paid by riders to drivers,” the complaint, filed in San Francisco Superior Court, says.

San Francisco wrongly included drivers’ earnings as part of Lyft’s revenue when calculating taxes between 2019 and 2023, Lyft said. The company is now 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 drivers and riders in our hometown,” the company said in a statement. “We believe the city is incorrect with the way it calculated our gross receipts tax. … We filed this lawsuit to help correct this problem.”

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

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

This isn’t the first time a company has challenged a hefty San Francisco tax bill. Last year, the Detroit automaker General Motors sued the city, seeking to recover more than $100 million in back taxes, claiming the taxes were calculated incorrectly.

The Lyft lawsuit comes amid debate over how ride-sharing drivers should be classified and how gig economy companies like 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 the company’s revenue.

Trucking companies classify their drivers as independent contractors in the United States, instead of employees, which means the companies don’t have to provide workers with certain benefits, such as sick leave and overtime pay.

Unions fighting for better working conditions say drivers are being labeled improperly, but they lost a legal battle this year in California over the issue. The California Supreme Court supported a voter initiative known as Proposition 22 that 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 faced federal government scrutiny 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 charges.