Washington, D.C. attorney general hits Instacart with a lawsuit

AG sues Instacart over deceptive fees and not paying Washington, D.C. sales tax

District of Columbia Attorney General Karl Racine announced a lawsuit against Instacart on Thursday, claiming the company allegedly pocketed millions of dollars it told customers it would use an optional service as a tip for workers. 

Racine also alleges Instacart violated District of Columbia tax law by failing to collect sales taxes on the fees it collected.

According to a press release announcing the lawsuit, Instacart charged its District of Columbia customers a default 10% service fee for its delivery services between September 2016 and April 2018. Because there was no tip option visible at checkout, Racine claims many users assumed the service fee was akin to a tip. However, unlike a tip, the service fee went to Instacart and covered operating expenses.

In April 2018, Instacart changed course in response to media reports and contact from the attorney general’s office. However, Racine alleges that Instacart has since refused to refund consumers who were charged “deceptive fees.” 

Per District of Columbia law, Instacart must collect sales tax on the delivery services it provides. Racine claims the company hasn’t collected sales tax on its services the entire time it’s operated in Washington, D.C.

“Instacart tricked District consumers into believing they were tipping grocery delivery workers when, in fact, the company was charging them extra fees and pocketing the money,” said Attorney General Racine. 

“Instacart used these deceptive fees to cover its operating costs while simultaneously failing to pay D.C. sales taxes. We filed suit to force Instacart to honor its legal obligations, pay D.C. the taxes it owes, and return millions of dollars to District consumers the company deceived,” Racine added.

Instacart responded to the lawsuit, explaining it discloses to customers that tips are separate from and in addition to service fees. Instacart also stated it clearly indicates service fees go toward company operations.

“Additionally, 100% of customer tips always go to Instacart shoppers who are providing an important essential service for customers. We believe the accusations made in this complaint are without merit. We’re disappointed with today’s action by D.C. Attorney General Racine’s office and we welcome the opportunity to continue an open dialogue on these matters,” the company added. 

Racine previously sued DoorDash for its tipping model. The lawsuit alleged the company failed to tell customers that it used tips to offset workers’ guaranteed minimum pay. At the time, Racine said the tipping model was “ambiguous, confusing, and misleading.”

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