Class Action: Costco Charges Sales Tax on Manufacturer Rebates

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Costco Wholesale Corporation was hit with a class action lawsuit in a California federal court by a group of customers, alleging that the retailer collected more sales tax than it should have on products that included manufacturer rebates because it was never reimbursed for the rebate, which is a violation of California law.

The Costco customers who filed the class action lawsuit on Friday are all California residents, and they claim that they purchased products that came with a “manufacturer’s instant rebate” or “instant savings,” but the sales tax calculated was based on the price of the product before the discount or rebate was applied, when Costco allegedly doesn’t even get reimbursed by vendors for the rebates.

The so-called “Manufacturer’s Instant Rebates” are allegedly “not manufacturer funded,” according to the Costco class action lawsuit.

“Absent such third party payments, sales tax is only due on the discounted price,” the plaintiffs claim.

One of the plaintiff’s attorneys said he did an investigation into Costco’s rebates based on his own purchases through his own Costco membership and says that “Costco’s legal department refused to provide information” showing that Costco received reimbursement for its “Manufacturer’s Instant Rebates.”

The same attorney claims that he instead contacted three manufacturers involved with different advertised manufacturer rebates, and they allegedly told the attorney that “they did not fund Costco rebates.”

Plaintiffs Thomas Brooks, John Conrad, Gloria Kent, Eileen Kolkey, Robert Kolkey, Raymond Lee, Richard Parcel, Jeffrey Sobel and Byram Williams claim that there are more than a dozen vendors who say they do not reimburse Costco for manufacturer rebates.

“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 to the Board,” the Costco sales tax class action lawsuit claims.

“Plaintiffs are informed and believe that Costco paid all such erroneously collected sales tax reimbursements to the Board and that the Board therefore holds the excess sales tax collected by Costco from Plaintiffs and the Class as a constructive trustee,” the plaintiffs add.

For that reason, the plaintiffs also included the California State Board of Equalization, which is California’s tax collector, as a defendant in the Costco class action lawsuit.

The plaintiffs are looking to represent a class of “all current or former Costco members whom Costco charged sales tax on the pre-discount price of an item subject to a ‘manufacturer’s instant rebate,’ ‘instant savings’ discount, or other discount, for which Costco did not receive payment from a third party in the amount of the discount or purported rebate, in a transaction subject to California sales tax, during the period beginning four years before the filing of this action and continuing to the day before class certification.”

They are charging Costco with breach of contract and the State Board of Equalization collecting excess sales tax reimbursement.

The customers are represented by Dominic R. Valerian, Ray E. Gallo and George S. Louis of Gallo LLP.

Attorney information for Costco and the Board of Equalization is not yet available.

The Costco Sales Tax Class Action Lawsuit is Brooks et al v. Costco Wholesale Corporation et al, Case No. 3:15-cv-02098in the U.S. District Court for the District of Northern California.