Uber's Sales Tax Liability: Georgia Court of Appeals Decision on 2012-2015 Dispute

The Georgia Court of Appeals released its decision in the case Uber Technologies, Inc. v. O’Connell, regarding Uber's liability for collecting sales tax from drivers utilizing its ridesharing service platform between 2012 and 2015, which is in the pre-Wayfair era.

The dispute arose after the Georgia Department of Revenue conducted a tax audit and determined that Uber had not paid a substantial amount of sales tax during the period from 2012 to 2015.

Facts of the Case and Implications of the Decision

Uber, a well-known global ride-sharing platform that connects users, also known as riders, with independent drivers, started operating in Georgia in 2012. Uber does not charge users and drivers any fees for using the app. However, the company charges drivers a fee for its services, which include processing payments on their behalf. 

In practical terms, it means that when the ride ends, Uber collects the ride fee from the rider, routes the payment through a subsidiary, and pays the driver the amount reduced for its services.

During the audit, the Georgia Department of Revenue (DOR) noticed that Uber did not collect sales tax from Georgia riders and placed the responsibility for any sales tax on the driver, which Uber later confirmed. However, following the audit, the DOR issued a significant assessment for unpaid sales tax and penalties for that period.

Uber challenged the assessment, but the DOR denied any of Uber's claims, which resulted in Uber's appeal before the Georgia Tax Tribunal (Tribunal). In 2022, the Tribunal upheld the assessment, stating that Uber was liable for collecting sales tax because its business model is similar to that of traditional taxicab services. Uber continued disputing those conclusions, and after the superior court denied its appeal, the Georgia Court of Appeals agreed to consider Uber's appeal.

After examining Georgia sales tax rules and regulations for taxicab services, dating back to 1951, the Court of Appeals underlined that it states that cars for hire must collect sales tax on passenger fares, and whether the tax is paid directly by the driver or through a central entity depends on whether the driver is associated with a headquarters operator.

The court rejected Uber’s claim that the regulation applied only to traditional taxicabs and upheld the validity of this regulation, agreeing that it gave the DOR authority to shift the tax collection responsibility from drivers to a headquarters operator, in this case, Uber. Additionally, the Court of Appeals dismissed Uber’s claim that the taxicab regulation no longer applied because Georgia enacted a marketplace facilitator law in 2020.

Conclusion

The case highlights the importance of understanding state sales tax rules in a broader context. One of the most significant conclusions from this case is that state courts can interpret and apply longstanding tax regulations to new technological business models, even when those laws were created long before such innovations existed.

Source: Grant Thornton, Uber Technologies, Inc. v. O’Connell