Report: Judge Puts Proposed Peloton Class Action Lawsuit on Hold

Plaintiffs claim Peloton charged sales tax on its digital goods that should have been tax-free. According to a NY Judge, subscribers must arbitrate their claims that Peloton improperly charged a sales tax.

As Peloton nears the end of a grueling summer, a US District Judge in Manhattan has weighed in on a class action lawsuit alleging that the connected fitness company improperly charged sales tax, saying that the case does not belong in federal court. The proposed case has been put on hold pending the outcome of the arbitration.

Plaintiffs Brannon Skillern and Ryan Corken (Skillern et al v. Peloton Interactive, Inc.,) claim Peloton charged sales tax on digital goods that should have been tax-free. Instead, Peloton charged sales tax ranging from 6.3% to 8.9% on its $39-a-month “All Access” and $12.99-a-month digital memberships. 

According to Judge Edgardo Ramos, Peloton subscribers must arbitrate claims that the connected fitness company improperly charged a sales tax on memberships in New York, Massachusetts, Virginia, and Oregon, reports Reuters.

The class action lawsuit claimed that Peloton violated its Membership Terms, state law, and collected millions of dollars in overcharges by charging an “unlawful digital sales tax.” Peloton “willfully and knowingly overcharged its subscribers a false and unlawful sales tax on their Peloton Memberships,” according to the filing, and when members complained or inquired, the connected fitness company stated that its business practices were in compliance with state and local tax requirements.

Peloton stopped charging tax in New York, Massachusetts, and Virginia in January 2021.

In just the last few weeks, the connected fitness brand has reported an operating loss of $1.20 billion in Q4, layoffs, and selling of its Bike, Guide, and accessories on Amazon.