Alleging the company is fraudulently advertising service fees as sales tax, a class action complaint was filed in U.S. District Court, Central District of California against Chipotle Mexican Grill, Inc. (Chipotle). Suit was brought against the fast casual Mexican restaurant for representing to its customers that they are paying higher than usual amounts of sales tax, when they are actually paying sales tax plus “Chipotle’s eye-popping service fees.”
“In other words, Chipotle is hiding its hefty service fees inside of a “Tax” burrito. This is textbook fraud.”
Deceptive tactics
The complaint claims that customers placing online orders through Chipotle’s website or mobile app are being misled about the nature of the various taxes and fees they pay. On the checkout page of an online order for delivery, the customer can see the subtotal, a delivery fee, and “tax.” Under the “tax” line is a dropdown menu that is only visible if the customer clicks on it. Within the dropdown menu, the “tax” amount is further broken down, showing the actual sales tax charged plus Chipotle’s “service fee.”
Plaintiff in this class action ordered delivery from Chipotle and paid $5.10 in what he believed to be tax. Only after completing the purchase did the Plaintiff notice that he actually only paid $1.62 in tax, and the remaining $3.48 was Chipotle’s service fee. The Plaintiff stated that if he known this hidden service fee went to Chipotle instead of the government, he neither would have made the purchase or been willing the higher amount for his delivery order.
According to the complaint, customers have little reason to click the dropdown menu that reveals the true amount of tax charged and the service fee. Additionally, the complaint alleges that by “hiding its service fees under the cloak of taxes,” Chipotle is being unjustly enriched, because it is able to essentially conceal its high service fees.
allegations
One claim brought against Chipotle is a violation of California’s Business and Professions Code, which prohibits any “unlawful, unfair, or fraudulent business act or practice.” Chipotle allegedly violated the Code by failing to clearly disclose the service fee and misleading customers about the nature of the “tax” due. Claims of fraud and unjust enrichment were also brought under similar arguments.
Further, the class action members argue that this practice violates California’s false advertising laws, particularly considering the context of food delivery. Ordering delivery means that “[c]onsumers are hungry, their blood sugar is low, and their concentration levels are waning. As a result, they are less likely to notice Chipotle’s textbook bait-and-switch tactics.”
sales tax awareness
Recently, there have been several large companies accused of deceptive or misleading practices related to online ordering and delivery. As consumers, we should be mindful of the transactions on which we are charged sales tax.
Moreover, as a business owner or officer, you have additional responsibilities with determining when and on what transactions sales tax should be charged. No need to go it alone, let us help you.