Uber’s Driver Tax Dilemma Highlights Growing Legal Threat

Uber Technologies Inc.'s multimillion-dollar tax bill in New Jersey underscores a significant legal threat to the company’s core business model—its treatment of drivers as independent contractors.

A state-by-state dismantling of that model could reverberate across the gig economy and have a staggering impact on Uber’s bottom line. The company’s general and administrative costs—18% of sales—already are much higher than other large tech businesses, according to a Bloomberg Intelligence analysis. Uber’s costs per driver, and those of rideshare competitor Lyft Inc., could jump by more than 20% if they’re forced to reclassify workers as employees.

New Jersey recently hit Uber ...