Amazon Sued for Collecting State Sales Tax on Non-Taxable Items

A complaint filed on Tuesday has accused Inc. of assessing sales tax on certain digital goods in Massachusetts, New York, and other states despite the tax-exempt status of such goods under state laws. The Western District of Washington class action seeks to hold the world’s largest online marketplace accountable for alleged breach of contract and consumer protection act violations.

The filing claims that Amazon has a webpage explaining how taxes on purchases are calculated, stating that the tax rate is calculated based on the address where the order is delivered to or fulfilled from. For digital products and services, Amazon calculates the applicable rate by the billing address associated with the payment method or “the country of residence a device is set to.”

Further, Amazon reportedly promises that gift cards are not taxed items, but purchases paid for with gift cards may be subject to tax. Sometimes, Amazon adheres to this policy, the complaint says. However, the filing alleges, “there are numerous occasions in which Amazon charges sales tax on virtual gift cards in violation of its own policy, and in violation of the tax laws of Massachusetts and numerous other states.”

The complaint provides the example of the plaintiff, a Massachusetts woman who purchased a $10 digital gift card and was charged 6.25% state sales tax for a total of $10.63. She alleges that Amazon willfully mischarged her, and worse yet, may not have remitted the unlawfully collected tax to state authorities, “potentially recouping these overcharges in an effort to maximize profits at their subscribers’ expense and under the guise of a state-imposed tax.”

In turn, the complaint seeks the certification of several classes, two concerning digital goods generally and two concerning gift cards specifically. They are further divided geographically, one concerning “any state where the digital good should have been exempt from sales tax,” one nationwide, and two Massachusetts.

For the alleged harm, the plaintiff seeks injunctive relief, damages, restitution, and an award of her attorneys’ fees and costs. The consumer is represented by Carson Noel PLLC and  Bursor & Fisher P.A. 

Notably, the complaint echoes consumer allegations made last month against Peloton Interactive Inc. for membership fee overcharges. In that case, the plaintiffs alleged that the fitness company improperly assessed sales tax on subscribers in Massachusetts, New York, and Virginia.