District of Columbia: Grocery Delivery Platform Sued for Unpaid Sales Tax

Listen to a brief overview of state tax developments this week, including District of Columbia, or read full District of Columbia development below.

Detailed District of Columbia Development

The District of Columbia, through the Office of the Attorney General, recently filed a consumer protection and sale tax enforcement action against an online grocery delivery platform. The platform allows customers to purchase groceries from local stores through an app or website and have the groceries delivered by personal shoppers. During the periods at issue, customers using the platform would see at least four separate line items on their bill for a grocery order: (1) the cost of the items ordered, (2) a delivery fee, (3) a charge for applicable taxes and fees, and (4) an optional ten percent service fee. The Attorney General’s complaint alleges that the platform did not collect the sales tax owed on the platform’s delivery and service fees. Further, the complaint alleges that although the service fee appeared to be a tip for the personal shopper, the amount collected for the service fee was not actually paid to the shopper. It was, instead, retained by the platform to cover its operating costs. The platform’s alleged misrepresentations and omissions regarding the nature of the service fee are detailed in the complaint and form the basis of a claim that the platform violated the D.C. Consumer Protection and Procedures Act.

With regard to the platform’s alleged failure to pay sales tax due, the complaint points out that D.C. sales tax is imposed on a vendor’s “gross receipts” from a retail sale. The term “gross receipts” is defined as the total price paid for goods or services without any deduction for, among other things, labor or service costs or any other expenses or services that are part of the sale. Therefore, the complaint argues that the platform’s delivery and service fees are included in the “gross receipts” for the retail sale of the platform’s delivery service. The complaint also alleges that the platform is a marketplace facilitator that is required to collect and remit sales tax on the total amounts paid by its customers as the delivery and service fees. Because the platform did not collect sales tax on these charges, the complaint seeks relief in the form of an order requiring the platform to produce all books and records required to determine the unpaid sales tax liability, as well as penalty, interest, and reasonable attorney fees.  Please stay tuned to TWIST for additional updates. 

This Week's Developments

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Featured Speaker

Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US