Recently, Lyft launched a new ride-sharing service in San Francisco and Chicago that follows a designated route with set pick-up and drop-off locations, for a fixed fare—the Lyft Shuttle. (Some commentators have mocked the “new” service as being similar to a bus.) This new service joins other Lyft and Uber sharing economy transportation options, such as Lyft Line and Uber Pool (rides shared with other passengers) and regular Lyft and UberX (on-demand rides that are similar to a taxi service). As these types of sharing economy services increase, so do questions regarding their taxability.
In California and Illinois where the Lyft Shuttle currently operates, no passenger transportation services are subject to sales and use taxes, so riders and drivers won’t have to worry about shelling out more than the fixed fee when trying it out. However, whether sales and use taxes apply to Uber or Lyft rides in other states is not always clear, as not all states have addressed the taxability of these services.
Some states have addressed new ride-sharing services by exempting transportation network rides from sales and use tax if they are subject to fee and permitting requirements. For example, effective Aug. 6, 2016, Arizona exempts transportation network drivers from transaction privilege taxes if they are subject to a transportation network company fee and have a transportation network company permit. Effective July 1, 2017, Georgia takes a similar approach by exempting ride-sharing network services from sales taxes if the network or vehicle owner has purchased a for-hire master license for the vehicle. Conversely, some states like Rhode Island explicitly impose sales and use tax on all ride-sharing services, which began taxing these services on July 1, 2016.
In New York the question of whether Uber and Lyft rides are subject to sales and use was addressed in recently passed legislation. Specifically, New York explained in its 2017 budget bill (N.Y. A.B. 3009) that transportation network company prearranged trips (“TNC prearranged trips”), such as those provided by Uber or Lyft, are not subject to New York sales and use taxes. However, instead, the legislation imposes a state assessment fee of 4 percent on certain TNC prearranged trip fares. This budget bill resolution follows some wrangling between Uber and Lyft and the State of New York; Uber and Lyft were not actually allowed to operate outside of New York City until the budget bill permitted them to start this summer.
There has also been some controversy over whether ride sharing companies or their drivers should collect and remit sales tax. A failed Georgia bill, H.B. 225, sought to impose sales and use tax collection obligations on ride-sharing platforms. (For more information, see the Bloomberg BNA survey that discusses which states currently impose collection and remittance obligations on companies that provide ride sharing platforms.)
As new types of ride-sharing services emerge in addition to traditional transportation services, states will have to grapple with whether or not to tax these services. However, whether ride-sharing services are taxable or not, it certainly would be great not to have to worry about finding parking (or whether that parking is subject to sales tax) ever again.
Continue the discussion on LinkedIn: Should states impose sales and use taxes on ride-sharing services?
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