Peloton Subscriptions Unnecessary Sales Tax MA, NY, VA Class Action

Peloton Interactive, Inc. not only sells fitness equipment; it also allows users to stream live and on-demand exercise classes in their own homes. The complaint for this class action alleges that Peloton unlawfully charges sales tax on memberships sold to customers in Massachusetts, New York, and Virginia, even though those kinds of digital goods are exempt from sales tax under state law.

The class for this action is all persons or entities living in Massachusetts, New York, or Virginia who paid sales tax on a Peloton membership through December 31, 2020. New York and Virginia Subclasses have also been defined for those living in those states.

Peloton sells both the Peloton Bike, and Internet-connected stationary bicycle, and the Peloton Tread, a similarly-connected treadmill. Customers who buy monthly subscriptions can participate in online classes streamed to them in their own homes. As part of the subscription, Peloton also offers a library of classes in strength training, yoga, stretching, and meditation that can be accessed live or on demand. It now has 5.4 million members and bills itself as “the largest interactive fitness platform in the world.”

The Digital Membership is $12.99 per month which permits users of the app to have access to classes. An All-Access Membership costs $39 per month. It offers classes plus performance metric tracking for the bike or tread. Those who buy the Bike or Tread are required to buy an All-Access subscription.

The Membership Terms say that subscribers “agree to pay the monthly fee specified” along with “any applicable taxes and other charges.” They must provide a payment method that Peloton saves and charges each month.

Both the plaintiffs in this case, Brannon Skillern and Ryan Corken, bought Peloton bikes in 2019 and subscribed to the All-Access Membership. Both were charged sales tax of more than 6% each month on their subscriptions through December 2020, even though no sales taxes were owed by either for the subscriptions under state law.

The complaint alleges, “Peloton engaged in a uniform, years-long practice of charging a ‘sales tax’ on its customers’ Peloton Memberships subscriptions in jurisdictions that do not permit the taxation of digital products.”

The complaint also claims that Peloton has not remitted the purported sales taxes to state tax authorities and has simply kept the money to increase its profits at its customers’ expense.

While the complaint notes that Peloton changed its tax policies for Massachusetts, New York, and Virginia subscribers as of January 1, 2021, it also claims that it has not reimbursed subscribers for the purported taxes improperly collected before then.

Article Type: Lawsuit
Topic: Taxes
Tags: Improper Sales Tax Charges, Online Subscription Fees, Unfair Subscription Practices