Lyft (LYFT) has filed a lawsuit against its hometown, San Francisco, accusing the city of overcharging it $100 million in taxes over five years by wrongly categorizing drivers’ earnings from its app as company revenue. The ride-hailing service contends that San Francisco calculated Lyft’s taxes from 2019 to 2023 based on the total fare paid by passengers for rides. However, Lyft stated that this approach does not align with its business model.
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Lyft Considers Its Drivers as Customers, Not Employees
In its complaint, Lyft emphasized that it views drivers as its customers, not employees. Furthermore, the company stated, “Lyft recognizes revenue from rideshare as being comprised of fees paid to Lyft by drivers, not charges paid by riders to drivers. Lyft does not treat drivers as employees for any purpose.” This distinction points to Lyft’s long-standing classification of drivers as independent contractors, a controversial practice shared by other gig economy giants like Uber (UBER).
Additionally, Lyft’s lawyers have argued that San Francisco’s methodology for evaluating payroll, gross receipts, and homelessness taxes has infringed on the company’s constitutional rights by forcing it to pay more than what is attributable to its operations in San Francisco. Furthermore, these lawyers pointed out that the U.S. Securities and Exchange Commission and tax authorities don’t classify driver compensation as Lyft’s revenue or income.
As a result, the company is seeking refunds for overpaid taxes, interest, and penalties. Lyft reaffirmed its commitment to its hometown and commented, “…we love serving both riders and drivers in our hometown city. But we believe the city is incorrect with how it calculated our gross receipts tax for the years 2019-2023.”
Lyft’s Case Highlights the Debate Regarding Gig Economy
The case once again highlights the broader debate surrounding gig economy companies and their reliance on contractors to avoid employment benefits. Companies like Lyft and Uber have spent vast amounts of money settling worker misclassification claims globally, yet a definitive resolution remains elusive.
Is Lyft Stock a Buy Now?
Analysts remain cautiously optimistic about Lyft stock, with a Moderate Buy consensus rating based on nine Buys and 24 Holds. Over the past year, Lyft has declined by more than 8%, and the average LYFT price target of $19.25 implies an upside potential of 38.4% from current levels.
