Uber, Lyft Contend with Local Business Taxes in California

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

By Joyce E. Cutler

Sept. 21 — California cities and counties, preempted from regulating transportation network companies, such as Uber Technologies Inc. and Lyft Inc., are turning to the humble business license tax to assert control.

San Francisco Bay cities, home to the app-enabled platforms that let users hail a ride or score a bed, are tiptoeing through the minefield of taxing the nascent, multibillion-dollar industry where California Public Utilities Commission regulations prohibit the 482 cities and 58 counties from regulating TNCs.

While the state asserted regulatory control, “the power to tax with business licenses potentially is still at the local level,” Oakland Councilwoman Rebecca Kaplan told Bloomberg BNA Sept. 20.

“The business license is a certificate of tax compliance,” said Kaplan, who’s pushing the city to enforce the existing business license law in the future home of Uber, which is moving next year from San Francisco.

Tread Lightly

“Regardless of how technically the law applies, this is one of numerous examples of a time when government should take a step back and think about how a rigid application of the law actually effects potential taxpayers and citizens generally,” Amy Silverstein, a partner with Silverstein & Pomerantz LLP in San Francisco specializing in state and local tax law, told Bloomberg BNA Sept. 20. “It may be very short sighted to pursue maximum revenues, at the expense of emerging or even mature businesses.”

The greatest economic value is created when people are left free to observe market prices and choose how to use their property, said Benjamin Powell, Free Market Institute director and economics professor at Texas Tech University.

“The government should not play any role in regulating the sharing economy other than to respect and enforce any contracts that people mutually agree to. The sharing economy has flourished without government regulation and would continue to grow and serve peoples’ needs if the government stays out of the way,” Powell said in a Sept. 19 e-mail to Bloomberg BNA.sa

New Is New to Transportation

“This idea of innovation coming to transportation is, frankly, a relatively new thing. We’ve been doing what we’ve been doing in the transportation world since mass transportation” began, Randy Rentschler, legislation and public affairs director for the Metropolitan Transportation Commission, a Bay Area regional planning organization for roads and transit, said Sept. 19.

“This is one of these things where people are trying to come to terms with all these newness in an industry that is not subject to newness very often,” Rentschler told Bloomberg BNA.

Neither New Nor Innovative

The city business license tax is long-standing and prevalent, said Annette Nellen, director of San Jose State University’s master of science in taxation program.

Taxes are due if wheels touch a city’s streets. Driving for hire seven days in a calendar year on San Francisco streets means the driver must get a business license, Amanda Fried, spokeswoman for San Francisco Treasurer Jose Cisneros, said Sept. 16. The tax due is tied to gross receipts. Most drivers likely earn less than $100,000 and thus pay the annual minimum $91.

And driving in multiple jurisdictions requires multiple licenses. Driving someone from Berkeley to San Francisco International Airport means a business license tax is owed to multiple municipalities, Nellen told Bloomberg BNA Sept. 16.

Uber and Lyft representatives could not be reached for comment.

Keeping it Local

California Public Utilities Code Section 5371.4(a) prohibits any city, county or city and county—such as San Francisco—from imposing a fee on carriers.

San Francisco last spring sent more than 37,000 letters to drivers to get them registered for a business license. The Oakland City Council is considering whether to administratively subpoena TNCs to get drivers’ names and enforce the $72 flat rate business tax.

San Jose last fall changed its regulations so taxis and TNCs are on equal footing. San Jose determined all TNC drivers who operate as independent contractors must pay the business license tax.

Sharing Jurisdiction, Information

California cities can enter into agreements with the Board of Equalization or Franchise Tax Board to share information, which helps the city to know that someone is paying sales or income tax but not business license tax or vice versa, Nellen said.

The BOE and Los Angeles last year reached a reciprocal data-sharing agreement to identify who is operating without a business tax registration certificate. LA has a similar data-sharing agreement with the FTB.

California differs from other states, which use statutes to regulate TNCs, Christopher T. Lutz, a state and local tax attorney with Horwood Marcus & Berk Chartered in Chicago, told Bloomberg BNA.

Fractures appear even between jurisdictions that overlap, Lutz said in a Sept. 19 e-mail. “For the most part, these issues are dealt with on a jurisdiction by jurisdiction basis primarily because these jurisdictions are not cooperating in developing one regulatory paradigm other than those forced on them by the state, such as the CPUC.”

Complexities and Nuances

“It’s new and it’s very complex—from a regulatory perspective, policy perspective, from a business perspective,” said Patrick Kallerman, research manager for the Bay Area Council Economic Institute.

The Bay Area Council, composed of more than 250 of the region’s largest employers including Apple Inc., Facebook Inc. and Kaiser Foundation Hospitals and Health Plans, focuses on housing, transportation and other regional issues. Kallerman in a study found there are still more workers filing W-2s than 1099 forms for gig or contract work, though the number of gig workers is rising.

Ridesharing’s impact on the taxi business is obvious in places such as Nevada, where the number of trips declined 22.05 percent August 2015-August 2016, the eighth consecutive month with double-digit decreases, Nevada Taxicab Authority statistics show.

To contact the reporter on this story: Joyce E. Cutler in San Francisco at JCutler@bna.com

To contact the editor responsible for this story: Cheryl Sanez at csaenz@bna.com

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