Uber Sues Skokie Over 'Arbitrary Tax' On Rides Using Its App

CHICAGO — Ride-hailing company Uber Technologies filed suit Wednesday against Skokie in an effort to stop the village from implementing a tax on it and other app-based transportation networks. The lawsuit comes the same day Skokie was due to start charging a fee of 35 cents for every solo ride and 15 cents for every shared ride to the cost of any journeys starting or ending in the village.

Uber wants a judge to declare that Skokie's ride-hailing fee is unconstitutional and stop it from being collected, according to the complaint it filed in Cook County Circuit Court. It claims the village has imposed an unauthorized "occupational tax" on ride-hailing companies, that it has an "impermissible extraterritorial reach" because it taxes some rides that take place outside of the village's jurisdiction, that it is "arbitrary and discriminatory" because it has no bearing on the purported purpose of the tax and that the fee "does not bear a reasonable relationship to the stated purpose of the ordinance."

The village intended to become the third municipality in the state — after Chicago and Evanston — to collect a tax from ride-hailing firms, which it calls transportation network companies, when trustees unanimously adopted the new fee earlier this year. The tax in Chicago is currently 72 cents per ride, plus fees of $3 per vehicle per day and $5 for trips to airports, Navy Pier or McCormick Place. But Mayor Lori Lightfoot's proposed budget includes an increase to $3 per ride for solo trips in downtown areas from 6 a.m. to 10 p.m. on weekdays. Evanston first adopted a 20 cent per ride fee in November 2017 and a year later increased it to 45 cents for solo rides. Neither municipality was sued over the tax by Uber or its largest domestic competitor Lyft.

According to a memo from Skokie Finance Director Julian Prendi, the village board first discussed the concept of taxing and regulating transportation network companies during a budget workshop in November 2018. Staff suggested the new tax as "an option to both recover costs incurred (infrastructure wear), and to diversity the Village's revenue base," according to Prendi. It estimated the fee could bring in just over $75,000 a year based on an estimate of an average of 750 rides per day that begin or end in the village, with 85 percent of them being solo rides.

According to Uber, only 14 percent of rides taken by its customers so far this year have stayed within the village's borders. The company has more than 1,500 employees — it calls them "driver-partners" — with Skokie-based home addresses who have driven for the company so far this year, according to its complaint.

Harry Hartfield, a public affairs manager for the company, said Illinois is one of just four states, along with Minnesota, Nebraska and Oregon, that allow for local governments to impose their own taxes on ride-hailing companies. The operative state law, the Transportation Network Providers Act, which is due to expire in June, sets a minimum standards of background checks but does not impose a tax.

Hartfield said Uber tries to work with local governments in places it operates and sued Skokie as a "last resort." He was unable to confirm whether the San Francisco-based tech company has yet sued any municipalities over ride-hailing taxes in the other three states that allow it. Hartfield said the company would much prefer being taxed by the state government, rather than having to navigate various different fees in different jurisdictions.

"There's 1,200 cities and towns in Illinois, and a system where each one of them creates its own fees is not really ideal for riders or drivers," he said. "A statewide preemption would still allow Skokie to get some of that money. The state would pull in money and then could distribute it to municipalities."

The complaint alleges Uber must make "significant, unrecoverable efforts to modify its app" when a local government passes a new tax or fee. The company hopes its lawsuit will prevent more municipalities from introducing new fees on ride-hailing companies and spur lawmakers to implement statewide legislation to raise revenue.

"Where a tax applies to conduct occurring beyond a jurisdiction's borders, as Skokie's does, the resulting patchwork of taxes creates a complicated system of overlapping assessments for the same trip," it said. The complaint alleges paying that tax would hurt the Uber's competitiveness compared to other means of transportation and not paying it would lead to "stiff financial penalties," which include fines of $750 per day per offense or potentially losing its license to operate in the village.

The new tax was initially scheduled to take effect Aug. 1, according to village code. An exhibit to the lawsuit shows Prendi told lawyers for Uber the village was willing to postpone implementation for 90 days. That means the new tax was due to take effect the same day Uber filed its lawsuit in Cook County Circuit Court.

In response to a query sent to Prendi, Ann Tennes, marketing and communications director for the village, told Patch no one from the village would be willing to say anything about the implementation of the transportation network tax, including when and whether it has taken effect.

"You're welcome to search the village website. There may be information there," Tennes said.

When it was put to her that, according to the online version of the Skokie Village Code, the transportation network tax takes effect Aug. 1, Tennes declined to confirm or deny whether the village would be collecting the tax.

"I will have nothing else to say to you today about this," she said.

Michael Lorge, Skokie's top attorney, said the village has yet to be served with the lawsuit.

After passing the ordinance establishing the new tax on ride-hailing firms at its May 20 meeting, the Skokie Village Board introduced a series of other new taxes and fees on June 17 as part of a new two-year budget. They include new taxes on live performances, self-storage use and liquor. The village already imposes a 2 percent tax on food and beverages in addition to its 10.25 percent sales tax.

Village staff said earlier this month Skokie has no records showing how many additional taxes and fees it has imposed to make up revenue lost since it froze its share of property taxes in 1990 or when those taxes and fees were introduced.