Peloton Facing Class-Action Lawsuit Over Sales Tax Collection
Peloton, the seller of at-home stationary workout bikes and associated digital training programs, has been accused of improperly charging sales tax and is now facing a class-action lawsuit. Subscribers of Peloton Interactive in Massachusetts, New York, Oregon, and Virginia claim Peloton should have treated their monthly “All Access” digital memberships as tax-exempt digital goods.
“Peloton “willingly and knowingly overcharged it’s subscribers” to maximize their profit. ”
Millions of Dollars Collected from Users
A federal complaint was filed in Manhattan federal court in the summer of 2021 by Peloton Interactive subscribers who claim Peloton illegally charged sales tax on their $39 monthly subscriptions to digital workout classes. The lawsuit includes users from four different states that have existing exemptions for digital goods under state laws. Peloton had changed its tax-collecting policies starting January 1, 2021, but none of the class-action members had been reimbursed for taxes collected before the policy change. The lawsuit even claims that the company continued to overcharge some consumers in 2021 who had moved to a state with a digital goods tax exemption, despite updating their address and billing information.
The sales tax rates across these states range from 6.3% to 8.9%, meaning millions of dollars could have been collected in error. This number is following a huge spike in Peloton’s revenue when the COVID-19 pandemic led to many people working out at home.
The lawsuit seeks unspecified amounts of compensatory, punitive and triple damages. It cites not only a breach of contract, but also violations of consumer protection laws in Virginia and Massachusetts, business law in New York, and unlawful trade practices law in Oregon. Peloton filed its response with the U.S. District Court for the Southern District of New York through a motion and supporting memorandum. They asked the court to force class-action plaintiffs into arbitration or dismiss the case, citing the Tax Injunction Act in saying that the federal court could not and should not be responsible for hearing the claim.