Instacart Sued By D.C. Attorney General Over Alleged Deception Of Customers, Failure To Pay Taxes

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Written by Dana Sanchez
DoorDash
Grocery delivery app Instacart is being sued in Washington, D.C. over deceptive practices related to tips and failure to pay taxes. Image: mmg

Instacart, the grocery delivery app that is making millions from people who want to avoid in-store shopping during the coronavirus pandemic, is being sued in Washington, D.C. over deceptive practices and failure to pay taxes.

“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,” D.C. Attorney General Karl Racine said in a statement.

Valued at $14 billion, Instacart sold about $700 million worth of groceries per week in the first two weeks of April alone — a 450-percent increase on sales in December, The Information reported. 

By contrast, Instacart lost more than $300 million in 2019. Founded by a former Amazon employee in 2012, the private tech firm has been one of the most closely watched in the past five years. 

The lawsuit relates to an Instacart policy in effect from September 2016 to April 2018 in which the company charged consumers a default 10 percent “service” fee it could increase, decrease or waive.

“To a reasonable consumer, this service fee looked like a tip,” according to the complaint, released Thursday by the Office of the Attorney General.

However, the fee went to Instacart and had no impact on the compensation of its workers, the suit claims.

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The lawsuit also alleges that Instacart “failed to collect” District sales tax on service and delivery fees during the entire time it transacted business there, CNN reported.

“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 said in his statement.

Instacart workers brought a class-action lawsuit that resulted in a $4.6 million settlement and required the company to change how it referred to the service fee.

Owler estimates Instacart’s revenue at $2.9 billion.