TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, July 8, 2017

NY Times:  Uber Improperly Reduced Drivers' Pay By $200m By Withholding New York State Taxes That Should Have Been Paid By Passengers

UberNew York Times, How Uber’s Tax Calculation May Have Cost Drivers Hundreds of Millions:

Drivers’ trip receipts contain signs that the ride-hailing service deducted hundreds of millions of dollars from drivers’ earnings in New York to pay state taxes.

Amid the turmoil at Uber that resulted in Travis Kalanick’s stepping down as chief executive, the company announced a series of changes in late June aimed at improving its drivers’ work experience, including a new tipping option in its passenger app.

But even as Uber makes a concerted effort to win over drivers, it has not acknowledged all the ways it may have squeezed them in New York State.

In May, Uber admitted to taking excessive commissions out of the fares of its New York drivers, who are independent contractors, and promised to make amends. Increasing evidence, however, suggests that the company may have shortchanged the drivers by far greater sums than it acknowledged.

The following are signs that the ride-hailing service improperly deducted what could amount to hundreds of millions of dollars from drivers’ earnings to pay taxes that, under New York State law, are technically due from passengers:

  • Uber receipts from other states reflect a tax accounting at odds with the company’s justification for deducting sales tax from the fares received by its New York drivers.
  • Language from Uber’s recent contracts indicates that the company should not have taken the taxes from those fares.

Uber has insisted there was nothing improper in its handling of the taxes. Here is a look at the law and the evidence on the question — including the way a major competitor, Lyft, deals with the same issue.

Under New York State law and regulations, passengers must pay:

  • An 8.875 percent sales tax on each trip they take using a ride-hailing service like Uber in New York City.
  • A 2.5 percent surcharge for a state workers’ compensation fund.
  • The receipts of Uber drivers suggest that until Uber changed its contract in May, this money typically came out of drivers’ earnings. Take, for example, a recent Uber trip in Brooklyn.

Tax | Permalink