Taxation of Ride-hailing

This report is a guide to the practice of taxing ride-hailing at the state and local levels in the United States. The information is based on a survey of legislation, news articles, journal articles, revenue data, and interviews. We first review the literature and provide a history of ride-hailing and the practice of ride-hailing. We then profile all ride-hailing taxes in the United States, classifying these taxes according to common attributes and pointing out what details of legislation or history distinguishes each tax. One important distinction is between ad valorem taxes, levied as a percentage of fare or revenues, and “per-ride” taxes levied as a flat charge per ride. Another distinction is the differential treatment of shared and single rides. We provide extensive references to laws and ordinances as well as propose a system to classify the state legal environments under which ride-hailing is taxed. States fall into five regimes: (1) a “hands-off” regime wherein local governments are permitted wide leeway; (2) a “tax-free” regime wherein local taxes are prohibited and the state does not impose a tax; (3) a “state-tax-only” regime wherein local taxes are prohibited but the state levies taxes for its own use; (4) a “revenue-sharing” regime wherein the state levies taxes and distributes them to local governments; and (5) a “local-option” regime wherein local governments can opt into participating in a tax system regulated by the state. We make nine recommendations for Illinois policymakers considering taxes on ride-hailing, with the most important being that the state pass legislation clarifying and regulating the rights of local governments to levy such taxes.