Federal Lawsuit Filed Against Chewy in RI - Alleges Pet Company Overcharged

Federal Lawsuit Filed Against Chewy in RI - Alleges Pet Company Overcharged

A federal class action lawsuit has been filed against Chewy — alleging the pet product company “overcharges its autoship customers.”

In the 27-page complaint filed in the U.S. District Court in Rhode Island this week, Rhode Islander Alix Cavas alleges Chewy “engages in a deceptive and unfair trade practice in which it advertises a ‘discount’ via its Autoship program but in fact offers a rebate or similar, which is  material to consumers as it impacts sales tax calculations.”

Cavas is being represented by the New York firm Gainey McKenna + Egleston and locally by attorney James Ruggieri.

GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST

 

Autoship at Crux of Case

The issue of how Chewy calculates taxes is at the basis of the lawsuit. 

“Generally, sales tax is levied on goods and services at the state, county, and/or local levels. Businesses transacting in a state or locality are required to collect sales tax and remit it to the appropriate tax authority. Accordingly, Chewy is required to charge sales and local taxes on all goods in the states and territories that it operates,” the lawsuit states. 

“Relevant to this action, where a retailer offers a discount (i.e., a percentage or dollar reduction in price) on a good or service, sales tax is calculated by reference to the discounted price of that good or service, not on the full price,” the suit continues. 

According to the lawsuit, this method of calculating sales tax “differs from the method applied to manufacturers' coupons and rebates which instead typically use the full product price to calculate sales tax.”

The lawsuit maintains this is where the autoship program runs afoul of the law.

“When you set up your first Autoship, you’ll receive 35% off your Autoship order, with a maximum discount of $20. After that, you’ll save an extra 5% on select brands for all future Autoship orders,” the lawsuit states. “Having been enticed by [Chewy’s] offer of discounted products, [Cavas] like the Class, enrolled in the Autoship program.”

 

Charging State Tax on Discounted Goods

The lawsuit goes on to outline how it says the tax calculation was made for Chewy. 

“Chewy offered its Autoship customers a discount on their Autoship orders. This discount is a cash discount...in the form of 35% off a customer’s first order and then 5% off Autoship orders thereafter,” according to the suit. “Accordingly, an Autoship customer that orders pet food at $10 per unit would in fact be charged $6.50 for their first order and then $9.50 for all subsequent orders, not including taxes."

“Because Chewy offers a cash discount in the form of a percentage reduction for  Autoship customers, then the sales tax on the products should properly be calculated based on the discounted amount,” claims the lawsuit. 

“As such, in the foregoing example, assuming 7% sales tax, Autoship customers should be charged $6.96 for their first order ($6.50 discounted price plus $0.46 sales tax) and  $10.17 thereafter ($9.50 discounted price plus $0.67 sales tax),” the lawsuit continues. “However, Autoship customers were in fact charged sales tax on the full price goods.”

The lawsuit provides a documented overview regarding how much Cavas paid in sales tax over a series of purchases — and how much she allegedly “overpaid.” 

Over the period of 3 years and 18 purchases, the suit alleges in total, she overpaid $13.35, making Chewy’s practices “deceptive and unfair."

“At all relevant times, Chewy advertised that it offered a discounted price for its Autoship orders,” maintains the suit. 

With the number of potential class members, the amount of overpayments could be substantial, according to the lawsuit. 

In the filing, the lawyers assert that “it is reasonably estimated that the Class is composed of millions of persons and the Subclass is composed of at least tens of thousands of persons.”

In its claims, the lawsuit alleges Chewy’s actions are in violation of the Rhode Island Deceptive Trade Practices Act and that Chewy engaged in “breach of contract,” “unjust enrichment,” and "negligence."

Lawyers for the plaintiff and Chewy did not respond to a request for comment at the time of publication.