Massachusetts adds tax to ride-hailing apps, will give 5 cents per ride to taxis

(Reuters) – Massachusetts is preparing to levy a 5-cent fee per trip on ride-hailing apps such asUber and Lyft and spend the money on the traditional taxi industry, a subsidy that appears to be the first of its kind in the United States.

Republican Governor Charlie Baker signed the nickel fee into law this month as part of a sweeping package of regulations for the industry.

Ride services are not enthusiastic about the fee.

“I don’t think we should be in the business of subsidizing potential competitors,” said Kirill Evdakov, the chief executive of Fasten, a ride service that launched in Boston last year and also operates in Austin, Texas.

Some taxi owners wanted the law to go further, perhaps banning the start-up competitors unless they meet the requirements taxis do, such as regular vehicle inspection by the police.

“They’ve been breaking the laws that are on the books, that we’ve been following for many years,” said Larry Meister, manager of the Boston area’s Independent Taxi Operator’s Association.

The law levies a 20-cent fee in all, with 5 cents for taxis, 10 cents going to cities and towns and the final 5 cents designated for a state transportation fund.

The fee may raise millions of dollars a year because Lyft and Uber alone have a combined 2.5 million rides per month in Massachusetts.

The law says the money will help taxi businesses to adopt “new technologies and advanced service, safety and operational capabilities” and to support workforce development.

Regulations for how the fee will be collected and a plan for how it will be spent still need to be drawn up, said Mark Sternman, a spokesman for the state’s MassDevelopment agency, which will be in charge of the money.

Riders and drivers will not see the fee because the law bars companies from charging them. Instead, companies themselves will pay the state, although Evdakov said it will be passed on to riders or drivers one way or another.

Authorities worldwide are grappling with how to regulate and tax ride-hailing. Seattle has passed a law that allows drivers to unionize. In Taiwan, Uber is battling a tax bill of up to $6.4 million.

Despite the cost, ride services in Massachusetts appear to have accepted the fee in exchange for other provisions. For example, the law does not ban them from picking up at Boston’s airport or convention center, although there will be special rules for those sites.

Lyft is pleased with the law even though it is not perfect, spokesman Adrian Durbin said.

Soliciting readers for how to spend the 5-cent fee, a column in the Boston Globe offered ideas such as hospitality training, incentive bonuses and help so taxi owners could buy “flagship” vehicles like a 1940s Checker or a Porsche.

Meister said the money could go toward improving a smartphone app his association has started using, or to other big needs.

“We definitely need some infrastructure changes,” he said.

The 5-cent fee will be collected through the end of 2021. Then the taxi subsidy will disappear and the 20 cents will be split by localities and the state for five years. The whole fee will go away at the end of 2026.

(Reporting by David Ingram in New York; Editing by Phil Berlowitz)