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Uber's Contractor Situation is Pointing Attention to Quirks in the Tax System

The omnipresence of smartphones has encouraged start-up companies to take advantage of the power of the mobile app. Apps give companies the ability connect directly with consumers and improve their businesses. Uber has fully embraced this power and has quickly grown from a small ride-sharing start-up in San Francisco to a multinational company.

Accessibility is extremely popular, and necessary, in today’s world. With Uber, customers can place a ride request and, within seconds, the driver is already on their way. This peer-to-peer service is quick and efficient, and Uber’s business model essentially eliminates the middleman that other players in the transportation industry rely on.

Still, concerns have arisen about Uber and other businesses like it. Aside from the regulatory and safety concerns, many have taken issue with how Uber classifies their drivers. Those who work for Uber and other “sharing economy” companies are considered contractors, not employees. Because of this, the federal government is concerned about how much revenue it is losing because of underreported income.

Since Uber drivers and many other shared economy employees are considered contractors, taxes are not withheld by their employer and many could be confused or simply unaware of the guidelines regarding their income taxes. While Uber reports all of its employees’ income to the IRS, other shared economy companies do not report income to the IRS unless the individual employee reaches $20,000, but in either case, it is still, as is the case for all employees, the employee who is responsible for actually paying the taxes. The IRS estimates that the federal government misses out on $194 billion in tax revenues a year from companies like Uber and others like it.

Even though Florida doesn’t have an income tax, the high-tech economy has created tax issues for the Sunshine State as well.

Like Uber contractors underreporting their taxable income, Floridians shopping online often fail to pay all of their sales and use taxes, in part because of a U.S. Supreme Court decision. Online vendors are not required to collect sales taxes at the time of the purchase if the vendor is based outside of Florida. This was determined by the U.S. Supreme Court in Quill Corp. v. North Dakota, which ruled that a retailer must have a physical presence in a state for that state to require the retailer to collect sales and use taxes from in-state purchasers.  

Floridians, nevertheless, are legally required to submit sales taxes directly to the Florida Department of Revenue. However, most people are unaware of this and therefore do not submit these taxes. Florida TaxWatch research indicates that the state loses millions of dollars in tax revenue annually as a result.

While Congress would be required to pass federal legislation in order to mandate that all remote sellers collect and remit Florida (and other states’) sales taxes, Florida could become a member of the Streamlined Sales and Use Tax Agreement (SSUTA) in order to regain some of the lost tax revenue. The SSUTA provides an opportunity for Florida to begin collecting money from a compact of sellers that voluntarily collect the tax and remit to SSUTA states, and Florida TaxWatch research finds that the state could regain more than $72 million in lost revenue if it joined the SSUTA.

These issues arising from Uber and remote sales are direct consequences of the growing tech-based economy. While technology is a useful part of our lives, it does impact how our government operates. All forms of government should ensure that they are receiving tax revenue that they are fairly and legally allowed to collect, while ensuring that services like Uber and other online businesses continue to operate.

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