Since bursting onto the scene in 2011, Uber has generally entered large local markets first and dealt with barriers to entry later. Those barriers have frequently involved taxi industry organizations, who insist that Uber should be subject to the same regulatory requirements they are, and legislators willing to take up their cause.
Uber’s market entry strategy has been effective, but in Nevada the state balked at these tactics and the company's drivers were subsequently banned from operating there until a regulatory scheme was hatched.
During the 2015 legislative session, the Nevada legislature did just that by enacting AB 175. This bill created a new classification for Uber and Uber-like companies and imposed regulatory requirements as well as an excise tax. The Nevada legislation classifies Uber, Lyft and comparable entities as transportation network companies, meaning they use a digital network or software application to connect prospective passengers and drivers who are available to provide transportation services. In a victory for Uber, which markets itself as a different and better alternative to taxi services, this classification draws a clear distinction between the company and the taxi industry.
The enacted excise tax, however, will apply to Uber and traditional taxi companies alike. The tax is 3 percent of the total fare charged for the transport of passengers. It appears that Nevada is the first state to enact an excise tax that is specifically applicable to the ride-sharing industry. In most other jurisdictions, the only transaction-based tax Uber is subject to is sales tax, but their compliance has varied because the company doesn’t concede that they are liable for such taxes given how they are organized.
In New York, the company collects and remits sales tax on its fares but still faced allegations from the New York City government of skirting their tax obligations because they do not pay the MTA surcharge that is assessed on all cab fares in and around the city. In Rhode Island earlier this year, Uber told state lawmakers that they were collecting sales tax on its fares but not remitting the monies to the state due to a lack of regulatory clarity. In California, Uber drivers in the state were recently granted class action status in a lawsuit over whether the company’s business model violates the state’s labor laws.
The company is undoubtedly facing growing pains stemming from tax and regulatory issues in the various jurisdictions in which it operates and this will likely continue as more governments set their sights on the ride-sharing giant.
For more information about state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library.
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