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Peloton Seeks to Toss Riders’ Lawsuit Over ‘Fake’ Sales Taxes

Jan. 12, 2022, 8:00 PM

Peloton asked a federal court to force plaintiffs who say the company charged them a false sales tax into arbitration, or otherwise dismiss their case because they allegedly waived the right to bring a class action.

The exercise equipment company, which provides $39-per-month subscriptions to digital workout classes, filed the response Tuesday at the U.S. District Court for the Southern District of New York through a motion and a supporting memorandum. The answer came after plaintiffs from multiple states sued in August on behalf of themselves and people who are similarly situated.

The plaintiffs argue that Peloton illegally charged a “sales tax” on New York, Massachusetts, Oregon, and Virginia membership subscriptions when the digital goods at issue were actually tax-exempt under state law. They described the charges as “willful and knowing,” saying the company continued overcharging after customers complained and after the company admitted wrongdoing.

While Peloton changed its practice in at least New York, Massachusetts, and Virginia starting Jan. 1, 2021, it had not reimbursed the plaintiffs or class members for unlawful taxes it collected before that date, according to an amended complaint filed Dec. 14. The class includes all residents of New York, Massachusetts, Oregon, and Virginia who have paid taxes on their Peloton memberships.

Peloton said Tuesday that three of the four plaintiffs agreed to resolve any disputes arising out of Peloton’s membership terms through arbitration, and that the fourth—who has said he paid a falsely-charged tax on his wife’s subscription—was bound by his wife’s agreement to arbitrate. It also said parties bound by Peloton’s terms of service have waived the right to bring a class action against the company.

Even if the plaintiffs “could somehow overcome their binding agreements to arbitrate and to pursue any action only in an individual capacity, they still would fail to state a claim” for which a federal court could grant relief, Peloton wrote.

The company pointed to the Tax Injunction Act, which blocks federal courts from hearing lawsuits trying to restrain state tax assessment or collection when state courts can provide a sufficient remedy.

The plaintiffs also said the company continued to overcharge certain consumers in 2021 who had moved to a state where digital goods are tax-exempt and had updated their address and billing information.

The alleged conduct not only breached Peloton’s contract with customers but also violated consumer protection laws in Virginia and Massachuetts, broke New York business law, and ran afoul of Oregon unlawful trade practices law, according to the lawsuit.

The case is Skillern v. Peloton Interactive, Inc., S.D.N.Y., No. 1:21-cv-06808, motion 1/11/22.

To contact the reporter on this story: Aysha Bagchi in Washington at

To contact the editors responsible for this story: Patrick Ambrosio at; Butch Maier at