Obscure tax case could increase bureaucratic power

Markets and innovation tend to move much quicker than lawmakers, and a long-standing Georgia lawsuit perfectly encapsulates this: Uber Technologies, Inc. v. Frank M. O’Connell. The case centers around taxing previously unforeseen business models. While this may sound like an obscure issue, the result—whenever it is resolved—could have wide-reaching implications on the government’s separation of powers and taxation on emerging technologies and businesses.

The case stems from a 2018 tax dispute between rideshare company Uber and the state of Georgia. “The Georgia Department of Revenue has billed Uber $22.1 million for sales taxes and other charges it says the company owes. Though ride-hailing services do not pay sales taxes in Georgia, the department says they should under state law, just like their competitors in the taxi and limousine industries,” the Atlanta Journal-Constitution reported over 6 years ago.

The Legislature has since codified what taxes rideshare companies must pay to the state—50 cents per ride and 25 cents per shared ride—but Georgia wants what it considers back taxes from Uber. Due to some legal wrangling, the total is now down to $9 million. From the beginning, however, the rideshare company has maintained that it was not responsible for collecting sales taxes.

For one, Uber, Lyft and the like are not taxi or limo companies, and as such, they shouldn’t be regulated as if they are. Instead of operating as full-fledged taxi companies, they offer platforms to connect drivers—who are independent contractors—to customers. Then—as outlined in the ongoing lawsuit—rideshare companies collect the fares and direct it back to the drivers after they pay Uber for their services. Before 2020, no Georgia code section directly contemplated sales taxes on rideshare companies because ridesharing at the time was a relatively new phenomenon.

This arrangement and reality apparently led Uber to believe that drivers, not the company, were responsible for collecting the sales tax. The Department of Revenue and Georgia Tax Tribunal disagreed and enforced their own interpretation of tax law, which is a point of contention.

Uber rightly alleges that the Georgia General Assembly, not a state agency, has the sole power to establish taxes and that agencies are only empowered to come up with their own interpretations of laws when the statutes are ambiguous. Uber asserts that the law was clear at the time, but bureaucrats nevertheless labored to make the company subject to a potentially unrelated tax scheme.

Despite this, Uber has received numerous setbacks in the courts and has appealed the issue to the Georgia Supreme Court. I have no idea how this will be resolved. Perhaps the high court will decide that Uber’s arguments hold water, or they might swiftly reject them. However it rules, the case’s implications could be detrimental. Unsurprisingly, with the stakes being so high, business organizations are rallying around Uber.

“This week, Uber got a helping hand from the Georgia Chamber, Metro Atlanta Chamber and Georgia Association of Manufacturers, which urged the court to consider the vulnerability of Georgians and the state’s business community. They said the rulings in the case to date, if allowed to stand, will lead to ‘uncertain, costly, and fundamentally unfair outcomes for Georgia businesses,’” according to the Journal-Constitution.

“’A powerful department, unbounded by statutory limits, may impose errant assessments against other Georgia businesses, particularly small, innovative businesses whose services and products may not fit into tax statutes as written,’ the organizations said.”

They make some interesting points. If the ultimate ruling allows agencies to usurp the General Assembly’s statutory authority, then that would be highly concerning. Part of what makes our form of government so unique and successful is our system of checks and balances and separation of powers.

Permitting bureaucrats to tax nascent technologies—by citing old, irrelevant code sections and in ways never contemplated by legislators—could also undermine burgeoning business models. This could stymie innovation and stunt economic growth. That would seem unacceptable in a state that prides itself on being the number one state for business several years running.

Thanks to ever-evolving and emerging innovation, lawmakers will always be playing catch-up, and that’s OK. Legislators cannot predict the future—at least not well—but for now, we just have to wait and see how the judiciary responds to Uber’s petition. Regardless of the impact on the rideshare company, hopefully the justices will rule in a fair manner that continues to respect the state’s separation of powers and limit bureaucratic overreach.