Lyft has launched legal action against the City of San Francisco, claiming the city overcharged the company by $100 million in taxes between 2019 and 2023.
The central argument from Lyft is that San Francisco’s tax assessments were based on the total fare paid by passengers, rather than on Lyft’s commission from each journey. The company asserts that this method significantly inflates its taxable revenue. In the lawsuit, Lyft states, “San Francisco’s methodology is distortive and will grossly overstate Lyft’s gross receipts attributable to Lyft’s business activities in the city.”
This legal dispute stems from the effects of California’s Assembly Bill 5 (AB 5), enacted in 2019, which redefined the classification of workers, including rideshare drivers. The legislation aimed to classify many gig workers as employees, thereby entitling them to benefits and altering tax obligations. In response, companies like Lyft and Uber backed Proposition 22, a ballot measure passed in November 2020, which allowed rideshare drivers to remain independent contractors. The California Supreme Court upheld Prop 22 in July 2024, reinforcing the independent contractor status of these drivers.
Lyft’s lawsuit references this context, arguing that drivers are not legally employees and that the city’s tax calculations are therefore flawed. The company highlights that it recognises revenue from fees paid by drivers, not the total charges paid by passengers. Consequently, Lyft argues that San Francisco’s tax assessments have violated its constitutional rights by imposing excessive tax burdens.
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San Francisco officials have indicated that they will review the complaint and respond accordingly. The city, currently facing a budget deficit exceeding $500 million, is expected to contest the lawsuit vigorously.
Legal experts note that this lawsuit reflects ongoing tensions between municipalities and rideshare companies over tax obligations and worker classifications. Observers suggest that this case could have significant financial implications for both Lyft and San Francisco, potentially shaping future tax assessments and regulatory approaches within the gig economy.
