Costco may be double dipping on sales tax according to a class action suit in California. The suit, filed by John Conrad, Thomas Brooks, Eileen Kolkey, Gloria Kent, Robert Kolkey, Jeffrey Sobel, Raymond Lee, Richard Parcel and Byram Williams, alleges that the wholesaling giant is breaking California law by overcharging customers for discounted items. The plaintiffs filed suit on May 8 in the U.S. District Court for the Northern District of California.
Costco frequently offers “manufacturer’s instant rebates” or “instant savings” on certain items. The purchase price is discounted for customers at the cash register. The lawsuit alleges that that is the point at which the double dipping occurs. Costco doesn’t just charge sales tax (7.5%, plus a district rate; up to 10% total in some areas!) on the discounted rate. Oh, no, it charges sales tax on the full price of the item.
The suit explains that such a practice would be perfectly legal if the third-party manufacturers were reimbursing Costco for the discounted amounts. According to the suit though, no such reimbursement happens.
“By charging sales tax on the higher, pre-discount price of items for which Costco did not receive a qualifying third-party rebate, Costco erroneously collected sales tax reimbursements from its customers for sales tax that it did not owe.”
Plaintiffs are currently seeking approval for class action status. The suit asks from more than $5M in damages plus court costs. Plaintiffs’ attorneys are Ray E. Gallo and Dominic R. Valerian of Gallo, LLP of San Rafael, Calif., and George S. Louis Attorney at Law of El Cajon, Calif.