Costco Class Action: Retailer Over-Collects NY Sales Tax on Coupon Items

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A New York man says Costco must pay back revenues it received by allegedly over-collecting sales tax on Costco coupon items.

Plaintiff Mark Guterman says Costco has been unlawfully charging sales tax on the full value of certain coupon-discounted items. The coupons for these items do not bear a disclosure required by New York state law, triggering a duty on Costco’s part to cover the taxes on the amount of the discount.

Instead, Guterman claims, Costco has been illegally charging its customers taxes based on the full price of the coupon items, with no accounting for the coupon discount.

Costco could now be liable to a Class of millions of customers for potentially tens of millions of dollars in damages, Guterman alleges. State law allows affected shoppers to seek the greater of their actual damages suffered or $50. Where the alleged violations are made willfully or knowingly, Costco could be liable for treble damages up to $1,000.

New York state law has a few provisions governing the collection of sales tax on coupon-discounted items, depending on how the coupon is issued and how the discount is subsidized.

When a retailer issues a coupon for a discount to be covered by reimbursement from the manufacturer, the retailer is on the hook for the sales tax applicable to the entire amount of its receipts – the sale price plus the manufacturer’s reimbursement.

But unless the retailer discloses the manufacturer’s reimbursement to the customer, the retailer can’t collect from the customer any more sales tax than an amount based on the discounted price the customer pays.

According to Guterman, Costco’s monthly coupon booklets issued before August 2013 used to identify each coupon as either a “manufacturer’s coupon” or as “manufacturer’s savings.” After August 2013, he says, the Costco booklets bore no indication that the coupons were “manufacturer’s coupons” and made no mention of whether the coupons were linked to any manufacturer’s reimbursement.

Therefore, for items discounted with those coupons, Costco customers were required to pay taxes only on the discounted amount of those items. Neverthelesss, Guterman claims, Costco unlawfully charged its customers sales tax on the full price of those items.

Guterman wants to bring his claims on behalf of a proposed statewide plaintiff Class that would include all persons who, within the three years preceding this action, purchased items from a New York Costco store that were discounted with coupons from the Costco coupon booklet and who paid New York sales tax on those purchases based on the full price of those items.

He seeks a damage award, including statutory damages available under New York law for three times each Class Member’s actual damages, up to $1,000. He also seeks an award of court costs and attorney’s fees, all with pre- and post-judgment interest.

Guterman is represented by William R. Weinstein of Law Offices of William R. Weinstein.

The Costco Unlawful Sales Tax Collection Class Action Lawsuit is Mark Guterman v. Costco Wholesale Corp., Case No. 7:17-cv-04812, in the U.S. District Court for the Southern District of New York.