Class Action Alleges Amazon Improperly Charged Sales Tax on Tax-Exempt Gift Cards, Digital Goods

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Amazon.com, Inc. has unlawfully charged sales tax on the purchase of gift cards and certain digital goods in violation of its own representations and state tax laws, according to a proposed class action out of Washington.

Per the 19-page case, although Amazon represents that sales tax will be calculated based on the address each order is delivered to or fulfilled from, and that no tax is charged on the purchase of gift cards, the online retailer has frequently charged sales tax on gift cards purchased in states that do not assess tax on digital goods.

The lawsuit alleges Amazon’s “years-long practice” of charging sales tax on digital items and gift cards has allowed the company to collect “millions of dollars in overcharges” at customers’ expense.

Behind the case is a Massachusetts resident who claims to have been charged a 6.25-percent sales tax on the purchase of a $10 Roblox gift card. The lawsuit argues that because the item was purchased in Massachusetts, where digital goods are exempt from sales tax, and was a gift card, which Amazon expressly states is not subject to sales tax, the plaintiff should not have had to pay tax on her purchase.

“Yet, Amazon charged [the plaintiff] the Massachusetts 6.25% ‘sales tax’ ($0.63) on this purchase even though no such tax was actually owed under Massachusetts state law, and even though Amazon explicitly represents that ‘no tax is charged while purchasing gift cards,’” the complaint contends.

The lawsuit alleges Amazon’s assessment of sales tax on the plaintiff’s gift card violated both Massachusetts law and the retailer’s contracts with consumers.

Per the suit, Amazon’s allegedly unlawful sales tax assessment is not limited to Massachusetts. The case claims that even when a billing address for a Roblox gift card purchase is set to New York, Amazon applies an $0.89 sales tax to the purchase. Like Massachusetts, New York does not assess sales tax on the purchase of gift cards, the suit says.

The filing contends that Amazon, despite representing to consumers that its tax practices are compliant with applicable state and local laws, improperly charges sales tax in a number of other states whose tax laws do not allow for such. Moreover, Amazon does not charge sales tax for other digital goods, such as movies purchased through its Amazon Prime service, and “inconsistently” does not charge sales tax on certain other gift cards, the suit alleges.

Per the case, even if Amazon were “ignorant of state tax laws,” the retailer has nevertheless violated its own contracts with customers given it represents that “[n]o tax is charged when purchasing gift cards.”

The suit goes on to claim that “it is unclear” whether Amazon has remitted the unlawful sales tax to state authorities, and has possibly kept the overcharges for itself “in an effort to maximize profits” at customers’ expense and “under the guise of a state-imposed tax.”

The plaintiff looks to represent anyone who paid sales tax on a digital item sold on Amazon.com with a billing address in a state in which the digital item should have been exempt from sales tax, as well as a subclass for those with a Massachusetts billing address. The lawsuit also proposes to cover anyone in the U.S. who paid sales tax on the purchase of a gift card sold on Amazon.com, with a proposed subclass for Massachusetts residents.

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