Uber said Tuesday that it had made a mistake in the way it calculated its commissions, at a cost of tens of millions of dollars to its New York drivers, and the company vowed to correct the practice and make the drivers whole for the lost earnings.
The ride-hailing service said it had been taking its cut from a figure including state taxes, rather than a pretax fare. If a passenger handed over $20, and $2 of that represented taxes, Uber’s commission was a percentage of the full $20, not of $18, as it should have been. Even at pocket change per ride, the cumulative difference was vast.
“We are committed to paying every driver every penny they are owed — plus interest — as quickly as possible,” Rachel Holt, the company’s regional general manager for the United States and Canada, said in a statement.
But Uber’s handling of passenger payments raises questions about a larger legal issue, potentially far more substantial: not the pocket-change difference in the commission but whether that entire $2 in taxes is improperly coming out of the drivers’ wallets.
Uber’s contract with drivers appears to allow the company to deduct only its 25 percent commission, not taxes, from their fares. But a lawsuit filed by a drivers’ advocacy group in New York last year said the company was making its drivers swallow the tax burden — a practice the group said amounted to wage theft.
Documents examined by The New York Times also point to such a practice, which could have cost drivers hundreds of millions of dollars.
The questions arise as Uber is facing mounting pressure over what drivers say is declining take-home pay, epitomized this year by a viral video of an argument between a driver and the company’s chief executive, Travis Kalanick.
Bhairavi Desai, executive director of the advocacy group, the New York Taxi Workers Alliance, said that “from the beginning, Uber built its business model on the assumption that ‘we hate taxes,’” and that it had long “passed this tax on to drivers.”
In response to Uber’s acknowledgment of error on Tuesday, the advocacy group said in a statement that “Uber hasn’t just wrongly calculated its commission; it has been unlawfully taking the cost of sales tax and an injured-worker surcharge right out of driver pay.”
In New York, the company must reckon with a state sales tax of nearly 9 percent per ride, as well as a 2.5 percent “black car fund” surcharge to cover workers’ compensation and death benefits.
Under New York state laws and tax regulations, the charges are supposed to be paid by passengers, meaning they are to be assessed on top of the fares. But trip receipts have long suggested that Uber deducts the amount from the drivers’ portion instead. The receipts have typically depicted an overall fare amount, from which the company subtracted an “Uber fee” (essentially its commission), the sales tax and the black-car surcharge. The drivers received what remained.
The collection method dates to at least 2014, and possibly to 2012, when Uber began operating in New York, and has affected tens of thousands of drivers.
Uber has denied that it is deducting the levies from drivers’ pay. “We calculate and have calculated sales tax and black-car fund correctly,” a company spokesman, Josh Gold, said in an emailed statement.
In early May, when The Times initially asked about the deductions, an Uber official made available by the company said the sales tax and black-car surcharge were incorporated into the passenger’s overall fare and then subtracted from the drivers’ take so that Uber could remit the money to the state. This, the official said, meant the passenger was actually paying the charges even though they appeared to be coming from the drivers.
The official compared the practice to selling a slice of pizza for $1 with tax included, but acknowledged that it was confusing.
The explanation appeared contrary to Uber’s contract, which as of last week defined the fare as the base plus a rate for each mile and minute — the definition makes no mention of a tax. The explanation also appears to be at odds with Uber’s trip receipts.
New York assesses sales tax only on rides that begin and end in the state, not rides beginning in New York and ending in other states. But Uber has calculated the fare for both types of rides the same way, suggesting that — contrary to the pizza example — there is no tax included in the fare the passenger pays.
For example, a driver’s receipt from Aug. 14, 2016, for a trip from Roslyn, N.Y., to Manhattan showed Uber charging a $7 base fare plus 65 cents per minute and $3.75 per mile — the rate for Uber Black, the company’s higher-end service. A second receipt from Aug. 3, 2016, for an Uber Black trip from Manhattan to Old Greenwich, Conn., showed identical rates, even though no sales tax would have been assessed.
Uber deducted $13.91 to cover sales tax from the driver in the Roslyn-to-Manhattan trip but deducted no sales tax from the driver in the Greenwich trip. (Both trips were subject to the black-car surcharge, which applies regardless of destination.)
The Uber official, in an interview on Tuesday, maintained that the tax was included in its fares and said the driver simply got a bonus on trips to Connecticut because the state assesses no tax on those trips.
At least one of Uber’s competitors in New York State, Lyft, appears to deduct the sales tax from drivers’ earnings as well. A Lyft driver’s receipt from July 24, 2016, depicts an overall fare of $16.34 and two deductions labeled “Ride Surcharge From Driver” that precisely equal the black-car surcharge and the sales tax amounts.
Lyft could be including the tax in the original fare it charges to passengers — there appears to be less evidence to contradict this claim than there is with Uber. A Lyft spokesman declined to comment on the issue.
The New York attorney general’s office and a spokesman for Gov. Andrew M. Cuomo did not respond to requests for comment on whether the practices of ride-hailing services on drivers’ pay might violate state regulations.
Richard Emery, a New York lawyer who litigated a case in 2009 involving an issue similar to the one raised by the Taxi Workers Alliance, said state authorities might be reluctant to pursue the case because the state does not appear to have been cheated out of tax revenue. But he said drivers could have a solid claim that Uber had misrepresented the way they were being compensated.
If a judge ruled on behalf of drivers in the complaint filed by the alliance, drivers could be awarded up to double the amount of the wage deductions, if the drivers were deemed to be employees rather than independent contractors. The judge could also award damages to drivers if Uber violated its own contract, which would not depend on their employee status.
Uber has dispatched more than 125 million rides in New York City since the beginning of 2015, according to data from the Taxi and Limousine Commission. If the average fare on those trips is at least $15, which appearsto be the case, and Uber deducted the charges from drivers on each trip, the amount of the improper deductions would be more than $200 million.
In New York, Uber is well versed in the ins and outs of the sales tax, having lobbied the State Legislature to roll it back. Last year, the company reached a deal in which the regional branch of a union, the International Association of Machinists and Aerospace Workers, agreed to help the company persuade the Legislature to scale back the tax. In exchange, Uber agreed to devote any tax savings to increasing wages and benefits for drivers.
“They have an army of lawyers actively lobbying in Albany for the repeal of this specific tax,” the Taxi Workers Alliance said in a statement. “That would imply a pretty intimate knowledge of the obligations of this tax.”