Uber is appealing an order from the Ohio Department of Taxation to pay $1.6 million in sales taxes and penalties.
The ride hailing company is arguing the tax law the state is citing doesn’t apply to the company. A hearing before the Board of Tax Appeals has been set for July.
The 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 it allegedly owes for those three months.
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.”
Policy Matters Ohio, a left leaning think tank, said based on the audit for one quarter, Uber would owe $13.5 million in taxes since July 2015 if it had to collect since then, and that figure also does not cover earlier operations or take into account the company’s growth.
The dispute reflects the growing effort to figure out how to tax and regulate the “gig economy,” as companies like AirBnb and Uber are grabbing business from other more heavily taxed industries like taxis and hotels. Regulators are asserting that the states are being cheated on revenue by these startups, which look a lot like businesses the state is already collecting millions in taxes on.
In Uber’s case in Ohio, the company is arguing that it is not a transportation service provider but rather a “transportation network company.” 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 also argues that collecting a sales tax on the services provided by the drivers violates the Internet Tax Freedom Act.
The state in a Sept. 9, 2016 letter, told Uber that the 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.
“Not only was the petitioner present at the taxable sale, the petitioner is the catalyst for the transaction,” the state wrote.