Massachusetts introducing new charges for ride-hailing services to boost traditional taxi industry

The U.S. state of Massachusetts is reportedly planning to introduce a new 5 cent per trip fee for ride-hailing services like Uber and Lyft, and will use the money to boost its traditional taxi industry. It will be the first subsidy of its kind in the United States. The law was signed by Republican Governor Charlie Baker this month, which is one of many regulations for the industry.

A Fortune report quotes Kirill Evdakov, the chief executive of Fasten, a ride service launched in Boston in 2015 operating in Austin, Texas, who said: “I don’t think we should be in the business of subsidizing potential competitors.”

The new rule is not ideal for ride-hailing app services, but it plays right into the hands of traditional taxi companies. Some taxi companies, according to the report, considered pushing for even harsher laws, perhaps to even ban start-up ride-hailing services unless they meet the requirements that taxis do, such as regular vehicle inspections 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. He refers to a law that levies a 20 cent fee, with 5 cents going to taxis, 10 cents to cities and towns, and the final 5 cents designated for a state transportation fund.

With the law put in place for ride-hailing services, millions of dollars could be raised a year since Lyft and Uber together have a combined 2.5 million rides per month in Massachusetts. The new law is being put into place to help taxis adopt “new technologies and advanced services, safety and operation capabilities,” and to support workforce development, writes Fortune.

Mark Sternman, a spokesperson for Massachusetts’ MassDevelopment agency, said regulations for how the fee will be issued and collected, as well as a plan for how the funds will be spent, still needs to be drawn up. MassDevelopment will be in charge of the funds. The fee will be invisible to riders and drivers because the law prohibits companies from charging them. Instead, ride-hailing companies themselves will pay directly to the state.

Ride-hailing app services have certainly caused a stir around the world and authorities have been struggling to figure out how exactly to regulate them. The city of Seattle in Washington has passed a law allowing drivers to unionize. Meanwhile in Taiwan, Uber is reportedly up against a massive tax bill of up to $6.4 million.

Even though the new law in Massachusetts isn’t particularly ideal for ride-hailing services like Uber and Lyft, the companies are said to have accepted the new fee in exchange for other provisions. For example, the services won’t be blocked from picking up passengers from Boston’s airport or convention center, but there will be special rules put in place for those sites.

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

A column in the Boston Globe shared ideas of how to spend the new 5 cent fee, such as hospitality training, and incentive bonuses so that taxi owners could potentially upgrade to flagship vehicles like a Porsche to attract customers. But Larry Meister said the money will likely go towards improving the Independent Taxi Operator’s Association smartphone app.

“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 of Massachusetts for five years. The whole fee will be gone by the end of 2026.