1/14/2022 McCall Macomber
Researchers explore using ride-hailing services to create new revenue sources and encourage shared rides, as the services return to pre-pandemic levels of popularity.
Written by McCall Macomber
By McCall Macomber, Illinois Center for Transportation
Ride-hailing services such as Uber and Lyft increased in popularity before the COVID-19 pandemic, a trend that will likely resume once we return to pre-pandemic behavior.
Once ride-hailing use returns, it also has the potential to reduce transit ridership and increase congestion in major cities.
One way to offset these costs? Using ride-hailing services to create new revenue sources as well as encourage shared rides.
Here to investigate are Illinois Center for Transportation and Illinois Department of Transportation in their joint project, “R27-217: Taxation of Ride-hailing.”
Lewis Lehe, a University of Illinois Urbana-Champaign Department of Civil and Environmental Engineering assistant professor, leads the effort with Chuck Abraham, IDOT’s manager of program support (planning).
Lehe and his team examined the history of ride-hailing services and taxes as well as surveyed states’ use of ride-hailing taxes and the types of laws used to implement these taxes.
A benefit from ride-hailing taxation? This new revenue source can potentially lead to more funds for other transit areas.
“Ride-hailing taxation can potentially raise revenue for public transportation and help make ride-hailing a tool for improving and/or supplementing public transit rather than replacing it,” Abraham said.
The project’s goal is to create best practices for policymakers who are considering taxing ride-hailing services.
The researchers aim to help lawmakers equitably raise these revenues as well as avoid common pitfalls and costly mistakes.
“Our emphasis has been on simplicity, transparency (and) administrative ease,” Lehe said. “So, if you do have a (ride-hailing) tax, we hope to provide some guidance on how to implement it and help policymakers make well-informed decisions about the various ways that this is handled.”
The team’s key recommendation is for Illinois’ state legislators to pass “clarifying” jurisdictional legislation about ride-hailing taxation.
“(Ride-hailing taxation) isn’t like a national income tax,” Lehe said. “It’s done often at very local levels, so the variety of ways that cities, counties and states have done it is very wide.”
Ride-hailing by nature involves transporting users from one place to another, so riders may begin their trip in one city or county and end it in a different city, county or even state.
Deciding who benefits from this potential revenue can be a challenge if local governments have contradicting ride-hailing ordinances.
“For most products and services, (the issue) doesn’t really come up,” Lehe said. “Moving forward, it could get very tricky if more and more places start passing their own ride-hail taxes.”
In Illinois, for example, local governments like Chicago, Evanston and Skokie have ride-hailing taxes, but there are currently no regulations at the state level.
Lehe lays out a few directions for Illinois policymakers moving forward such as turning to a “revenue-sharing” taxation model, in which cities and counties are banned from passing their own ride-hailing taxes and can instead choose to opt into a statewide tax.
The state would send part of the revenue from that trip to the cities or counties in which it took place.
While ride-hailing taxation is still in the early stages, Lehe expects that the topic will likely be “on the table” in Illinois’ future, with an early draft of Governor Pritzker’s Rebuild Illinois legislation including a tax on ride-hailing.
Lehe also cautions interested parties to adjust potential ride-hailing taxes for inflation and to consider the role future technologies such as autonomous vehicles may have on ride-hailing when drafting its legislation.