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Uber slapped with $650 million tax bill by New Jersey

The Garden State is looking to harvest nearly $650 million in back taxes and penalties from Uber Technologies, making New Jersey the latest front in a nationwide battle over whether drivers who work for ridesharing companies are considered employees or independent contractors.

Uber and subsidiary Rasier were assessed $523 million in past-due taxes during the past four years for misclassifying drivers, the New Jersey Department of Labor said in letters to the companies, according to Bloomberg Law. The rideshare businesses also are on the hook for as much as $119 million in interest and penalties on the unpaid amounts, internal department documents obtained by the news service show.

The Bloomberg Law report is based on documents obtained under the state's Open Public Records Act, the state agency said in an email to CBS MoneyWatch.

"Misclassification hurts law-abiding businesses and employees who are misclassified, and costs the state untold millions in unpaid unemployment and disability taxes," the agency said, declining to discuss specific cases.

Uber, however, is not ready to accept New Jersey's interpretation of how its drivers should be classified.

"We are challenging this preliminary but incorrect determination, because drivers are independent contractors in New Jersey and elsewhere," an Uber spokesperson told CBS MoneyWatch. 

Stock drops

Uber's business model largely depends on drivers being treated as self-employed contractors rather than employees who are entitled to health care and other benefits, a legal classification that saves the company on labor costs. Its stock price fell nearly 3% Thursday after news of the back-taxes tab surfaced.

New Jersey is not the only concern when it comes classifying employees. Uber and competitor Lyft have each pledged $30 million to fight recent legislation passed in California that could require them to count drivers as employees. Similar legislation is expected to come up in New York in 2020.

Labor advocates cheered the news of New Jersey's efforts.

"For too long, Uber has skipped out on paying its fair share. Now, New Jersey is holding Uber accountable and telling the company to pay up," noted Rebecca Smith, director of the Work Structures program at the National Employment Law Project. "Other states should follow New Jersey's example."

The New York Do It Right Employment Classification Test (NY DIRECT) Coalition echoed the sentiment, citing "consensus in a growing number of states that Uber drivers are employees."

Cracking down a "priority"

New Jersey has lost tens of millions of dollars every year since 2000 in foregone state income taxes and unemployment and disability contributions due to misclassification in all industries, a state task force concluded in a July report.

Cracking down on companies that misclassify workers as independent contractors, or paying them off the books, is a "priority" of New Jersey Governor Phil Murphy, the state's labor commissioner, Robert Asaro-Angelo, said in a statement this week.

"For those who say properly enforcing our unemployment laws will stifle worker flexibility, let's be clear: There is no reason temporary, or on-demand workers can't be treated like other employees who work flexible hours for short durations," Asaro-Angelo said.

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