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August, 2011

This tax guide helps owners and independent drivers of taxicabs (and limousines) understand how Washington’s retail sales tax, business and occupation (B&O) tax, and public utility tax apply to their activities. This guide covers the taxability of

  • Income a taxicab owner receives from renting a taxicab to a driver.  
  • Fare income.
  • Additional charges for fuel, additional passengers and baggage.
  • Tips.

Contents

Additional Resources

 

Rent or lease of a taxicab

The rental or lease income received by a taxicab owner from an independent driver for use of the taxicab is subject to retailing B&O tax.

The taxicab owner must also collect retail sales tax from the driver on that amount and remit it to the Department of Revenue (Department). This is true regardless of how (under the rental agreement) the rental payment is determined. Under some agreements, the rental payment is based on fares received by the driver. Under other agreements, the rental payment is based on the amount of time (for example, hours or days) the taxicab is used by the driver.

Also, the taxicab owner must charge the driver the Motor Vehicle Sales/ Lease Tax of .3% on the rental amount. (See RCW 82.08.020(3).)

Driver Obligation

Taxicab owners may be prohibited from requiring a driver to pay owner expenses under local codes. However, the retail sales tax that is due on a taxicab rental/lease is a driver obligation as it is imposed on the taxicab driver (lessee) but collected and remitted to the Department of Revenue (DOR) by the taxicab owner. DOR requires the driver to pay retail sales tax on the lease amount and DOR requires the owner to collect this money and submit it to DOR.

Fare income

Income received by taxicab drivers (and taxicab owners operating their own taxicabs) for transporting passengers or property is subject to the public utility tax (PUT) under either the motor or urban transportation classifications. These classifications are defined in RCW 82.06.010 and outlined below.

The amount subject to the public utility tax is the full value of cash, credit card charge slips, taxi scrip and account vouchers received for providing the taxicab service. (There are no deductions allowed for dispatching and cashiering services.)

Urban Transportation: Operation of any motor vehicle by which persons or property are moved for hire within five miles of the city limits or entirely within the city limits.

Motor Transportation:  All other operations of any motor vehicle by which persons or property are moved for hire.

For further clarification of the five mile requirement, and what qualifies as urban transportation, please refer to the Department’s Trucking Guide. Pages 5 and 6 provide examples of both motor and urban transportation.

People engaged in both urban and motor transportation are taxable under the motor transportation classification unless they have segregated their income in their records.
WAC 458-20-180

The public utility tax is reported on the Public Utility Tax Addendum of the excise tax return.

The current tax rate for Urban Transportation is .00642. The current tax rate for Motor Transportation is .01926.

Other income

Miscellaneous fees
Income received from miscellaneous fees (e.g., fuel surcharge, extra bag fee, additional passenger fee, airport fees, etc.) is subject to the public utility tax in the same manner as the fare income described above. Charges for these miscellaneous fees are not subject to retail sales tax.

Tips
Amounts received as voluntary tips are not subject to Washington’s taxes. However, if the tip is required or mandatory, it is subject to PUT tax as previously explained. Examples of required or mandatory tips include

  • Required gratuity of $1.00 per each additional passenger.
  • Required extra baggage tip.

No deduction for the cost of doing business
Drivers are subject to tax on the gross income they receive. There are no deductions allowed for business expenses such as cab rental costs (fare splits), dispatch fees, cashiering services, gas, tolls, etc. However, a deduction for services jointly provided is allowed. See WAC 458-20-179.

Interstate transportation
Income received from providing transportation of people across state lines is not subject to Washington’s taxes. As provided in WAC 458-20-193D, “Income from those activities which consist of the actual transportation of persons or property across the state's boundaries is exempt.”

Registration requirements

Taxicab owners
Taxicab owners renting their taxicabs to drivers must be registered with the Department of Revenue. They are obligated to collect and remit retail sales tax on the amounts received from the drivers for use of their taxicabs. In addition, B&O tax applies under the retailing classification.

Independent drivers
Independent drivers who have a gross fare income of less than $12,000 annually, and have no other taxable income, are not required to register. See WAC 458-20-101.

For more information
If you have further questions, please contact us or write to Taxpayer Information and Education, Department of Revenue, PO Box 47478, Olympia WA 98504-7478.