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.
How is Uber deducting the sales tax?
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.
How does Uber explain this?
The subtraction of taxes from the fare a driver receives does not in itself demonstrate that drivers were paying the tax. Uber officials argue that the $19.16 metered fare already included the tax — the same way a $1 slice of pizza includes tax — and that it was therefore proper for Uber to collect the tax by subtracting it from the fare that drivers receive and remitting it to the government.
In 2015, Uber began reflecting this approach on its passenger receipts as well, so that a passenger would see that the fare paid included sales tax and the workers’ compensation surcharge. (In a quirk of Uber’s system, the sales tax shown has sometimes been calculated on a passenger fare generated before the ride that doesn’t necessarily match the metered fare — as appears to have happened in this case.)
What’s the problem with Uber’s explanation?
In practice, the way a company displays a tax on its receipts doesn’t demonstrate one way or another whether a driver or a passenger actually pays the tax.
To determine who’s really paying in a case like this, one must determine whether the price the company charges passengers truly includes the tax. If it doesn’t, then the passenger isn’t paying the tax — the driver is, regardless of what the passenger receipt indicates.
There is growing evidence that Uber’s fares in New York were not tax-inclusive.
One way to see this is to compare how Uber accounted for trips in New York with how it accounted for trips in other states that levy a tax.
In Nevada, which levies a 3 percent tax on Uber rides — formally an excise tax — the metered fare listed on trip receipts did not include the tax. Instead, that tax was added on top of the fare, so that the passenger paid the fare the driver received, plus the tax.
The receipt from this trip from Reno to Carson City shows a $1.36 “transportation recovery charge” — that is, the tax — added on top of the $42.67 fare. Both were paid by the passenger.
This stands in stark contrast to the way Uber has operated in New York, where the company would typically have deducted the tax from the $42.67 fare the driver received, and the passenger would not have had to pay an additional amount for taxes.
Receipts from Rhode Island, another state with a sales tax, showed that Uber added the tax on top of the fare the driver received there.
Uber declined to comment for this article. The sales tax issue is being litigated as part of a lawsuit against Uber filed by the New York Taxi Workers Alliance, a driver’s advocacy group.
Another test: how Uber accounts for trips on which there is no sales tax.
New York levies the tax only on trips that begin and end in the state; a trip that begins in New York and ends in Connecticut, for example, would not be subject to the tax. Yet Uber calculated the overall fare using the same base fare and the same time and distance rate on those trips, suggesting that the tax was not included.
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