The state of Ohio and Uber are in the midst of a dispute over how the company should be taxed and Montgomery County tax dollars are on the line.
The Ohio Department of Taxation says Uber should be taxed as a transportation company while Uber said it is not a transportation service but instead is a “transportation network company.”
The dispute reflects the growing effort to figure out how to tax and regulate the “gig economy,” as companies like AirBnb and Uber grab business from other more heavily taxed industries like taxis and hotels. Regulators are asserting that the government is being cheated revenue from these startups, which can look a lot like businesses the state is already collecting millions in taxes on.
The news of Uber’s appeal in Ohio comes after a tumultuous 2017, the Associated Press reported. The year was marked by a $4.5 billion loss in revenue for the company, forced acknowledgment of sexual harassment problems, a high profile trade secrets case settlement with Waymo and continued debate in the U.S. and other countries over whether app should be treated like a taxi company.
“It’s actually kind of an international question with Uber. Are they just an app as they claim or are they a company that is analogous to a transportation company?” said Zach Schiller, research director with Policy Matters Ohio, a left leaning thing tank.
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The Ohio case only centers around whether Uber Technologies owes taxes for the third quarter of 2015, but could have larger implications than the $1.6 million in taxes and penalties that state is seeking to collect for those three months.
Policy Matters Ohio said based on the audit for one quarter, Uber would owe $13.5 million in taxes since July 2015, and that figure is conservative because it does not take into account the company’s growth and that’s not counting earlier operations.
The result of the appeal could also impact how much money the state can collect from Uber’s competitors like Lyft, said Zach Schiller, Policy Matters research director.
The audit documents show for the three months in question, Uber is reported to owe $15,480 to the Greater Dayton Regional Transit Authority and $30,960 to the Montgomery County government.
“Uber not collecting this tax is a direct hit on the transit authority in Dayton,” Schiller said. “You could argue it’s not a huge amount but nevertheless it is thousands that should have gone and hopefully will go to the Dayton transit authority.”
A hearing before the Board of Tax Appeals has been set for July 3.
The Ohio Department of Taxation said through a spokesman that it couldn’t comment beyond the final determination it issued to Uber. Uber said in a statement that “While we can’t comment on the specifics of ongoing litigation, we are working closely with the Ohio Department of Taxation on this matter.”
The dispute appears to date back to 2016 but only recently came to light after documents related to the appeal were posted publicly and then shared by Policy Matters Ohio.
Uber said in its notice of appeal, filed Nov. 6, that its employees don’t provide transportation services, because it is the contracted drivers, not the actual Uber employees, who are doing the transporting.
“Uber does not provide transportation services,” the company wrote. “Uber provides access to an ‘app; that Drivers and Riders can use to connect with each other and facilitate payment from the Rider to the Driver.”
Uber says the Ohio legislature would first need to expand the law to include payment collection agents as agencies that the tax applies to.
The state in a Sept. 9, 2016, letter told Uber that the company meets the definition of a vendor of transportation services, which would have to pay the taxes in question. Uber set the prices, controlled the quality and drivers and received payment for services.
The state said the former CEO of Uber has publicly said that the intention of the company is to become a driverless transportation company.
“Although the petitioner (Uber) describes its activities as merely providing a means for two interested parties to meet and ‘share a ride,’ the way the petitioner conducts its business does not support that description,” the department wrote.
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