By: Shu-Yi Oei
As some of you know, Diane Ring and I have written a couple of papers recently about tax and regulatory issues in the sharing economy.
Well, here’s the latest news out of San Francisco: It was reported a few days ago that the San Francisco City Treasurer recently obtained data about the identities of a number of transportation network company (“TNC,” i.e., Uber and Lyft) drivers and has proceeded to send some 37,000 notices to drivers. The notices require those driving for seven or more days in a year to register as a business operating in the city and pay San Francisco’s business registration fee ($91 for those earning $100,000 or less). The Treasurer’s office apparently refuses to say how they got the data, in the interests of taxpayer confidentiality, but in any case, they now have it and are using it to enforce the business registration requirement and fee against TNC drivers operating in San Francisco.
The applicable regulation lives in San Francisco Business and Tax Regulations Code Article 12, sections 853 and 855 of which impose the registration requirement and fee. The registration requirement and fee are imposed on those “engaging in business” in the city, unless exempt, and as far as I can tell, Article 6, § 6.2-12 specifically imposes the regulation on a person who “utilizes the streets within the City in connection with the operation of motor vehicles for business purposes for all or part of any seven days during a tax year.” The move to require registration also seems consistent with the continued position of the TNC companies that their drivers are appropriately classified as independent contractors, as opposed to employees. So unless I’m missing something big, it’s hard to see how the law would not on its face apply to drivers.
Several aspects of this development are interesting:
First, it’s been reported that the new push to require drivers to register coincides with San Francisco’s move to an online registration system last month. It’s also consistent with moves to require driver registration and fee payments in other localities. As more localities move towards online registration systems, I’d be curious to see whether it becomes easier to sweep up more of these sharing economy participants (what Diane Ring and I have called “microbusinesses”) into compliance with laws already on the books.
Second, the imposition of the registration requirement and fee obviously constitutes an additional cost for drivers, which may disincentivize the marginal driver from driving and might be particularly onerous for microbusiness owners doing business on a small scale. To the extent that the TNC model relies, in part, on driver willingness to drive, this could potentially have adverse effects on the business model if enough drivers decide not to. This all goes to the bigger issue of eventual value and viability of these types of sharing economy platforms. Interestingly, according to news reports, Uber has apparently expressed a degree of acquiescence with the Treasurer’s move, while Lyft has voiced concerns based on driver privacy grounds. One wonders whether the differing positions of Uber and Lyft may stem from their respective market positions. One might imagine that Lyft is slightly more concerned about losing the marginal driver. On the other hand, if turns out to be the case that many drivers driving for Lyft are also already driving for Uber, it’s unclear that Lyft would lose a disproportionately large share of drivers compared to Uber as a result of the registration requirement and fee, though even proportionate losses may matter more.
Finally, there are also some obvious compliance and enforcement issues: drivers receiving the notices were apparently given 30 days to register or inform the Treasurer that they are no longer driving. But in an industry where the line between driving and “not driving” may change at any moment with turning an app on or off, how will this line be policed? Admittedly, the threshold for registration is low—seven days of driving in a year will subject a driver to the registration requirement—but the decision to drive may change over time, making enforcement difficult. I’m guessing that the magnitude of the enforcement issue will depend, in part, on the quality and detail of the data that’s in the hands of the Treasurer and the likelihood of obtaining more, updated, data in the future. I suspect we’ll be seeing more information about this in due course.