Peloton Hit with Multi-State Membership Overcharge Complaint

Two men from Massachusetts and Virginia have sued the interactive fitness platform and exercise equipment manufacturer for purported membership fee overcharges in violation of Peloton’s membership terms and state law. The Southern District of New York complaint filed on Friday asserts that Peloton knowingly mischarged residents of at least three states under the guise of a sales tax and improperly retained the fees for itself.

The filing explains that “Peloton is an exercise equipment and media company that allows its customers to replicate the ‘boutique’ studio-fitness experience at home by streaming live and on-demand exercise classes.” The fitness company’s membership model has two options: users can either elect a $39 per month subscription granting access to the company’s “full catalogue of classes along with real-time performance metric tracking when used with the Bike or Tread,” or a more limited $12.99 per month Peloton app subscription.

By purchasing either membership, the complaint explains, subscribers must agree to the company’s membership terms, in relevant part providing that they will pay the monthly fee corresponding to their selected plan and “any applicable taxes and other charges.” According to the complaint, Peloton illegally charged sales tax to Massachusetts, New York, and Virginia customers, notwithstanding the tax-exempt status of such digital goods under those states’ laws.

The two plaintiffs purchased the Peloton Bike and all-access memberships in January and December 2019. Yet, Peloton assessed them both a sales tax in excess of 6% on their subscriptions every month through December 2020. Allegedly, the company eventually changed its taxation practices in the three aforementioned states effective Jan. 1, 2021.

The plaintiffs assert that the overcharges were not only willing and knowing, but worse yet, were not remitted to state authorities. Keeping the fake sales tax was a way to maximize profits at subscribers’ expense, the complaint contends. The filing seeks certification of a “Breach of Contract Class” consisting of Massachusetts, New York, and Virginia residents who paid tax on a Peloton membership through Dec. 31, 2020, and two New York and Virginia subclasses consisting of the same.

The plaintiffs seek all available compensatory, statutory, and punitive damages, and reasonable attorneys’ fees and costs. The consumers are represented by Susman Godfrey L.L.P.