DC sues Instacart, alleging ‘deceptive’ fees and tax avoidance

Washington, D.C., sued Instacart on Thursday, alleging that the grocery delivery company charged District residents millions in deceptive fees and avoided local sales taxes.

The lawsuit, filed by D.C. Attorney General Karl Racine (D) in the Superior Court of the District of Columbia, alleges that Instacart tricked users into thinking they were tipping shoppers while they were actually paying hidden fees.

“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,” Racine said in a statement.

The lawsuit claims that the default 10 percent “service fee” that Instacart charged between September 2016 and April 2018 would appear to users to be a tip. The fee went directly to Instacart.

Instacart told users at the time that 100 percent of the fee went to shoppers, but in reality the money was just used to cover the company’s costs, according to Thursday’s complaint.

The company changed its service fee system in April 2018, but declined to refund users who were deceptively charged the fees.

It also continued to conflate service fees with the option to tip even after those changes by misleading users about where the service fee went and burying the actual tipping feature, the complaint alleges.

Racine’s complaint points out that tipping in the District on Instacart fell precipitously after the service fee was introduced.

In September 2016, residents tipped on approximately 90 percent of all Instacart orders, according to the suit. Tipping fell to one-third of orders in each of the next two months.

“These numbers demonstrate that the service fee operated to allow Instacart to capture money for itself that consumers previously paid in tips, based on consumers’ misunderstanding of the nature and purpose of the service fee,” the lawsuit reads. “This cost-shifting was significant.”

The complaint also alleges that Instacart has failed to collect sales taxes owed to the District.

Local statute requires Instacart to collect sales tax on the delivery service it provides.

Racine is seeking the court to order Instacart to stop violating District law, provide restitution to users charged the service fee and recover unpaid sales taxes.

A spokesperson for Instacart said Thursday that “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,” they continued in a statement to The Hill.

The spokesperson stressed the fact that 100 percent of customer tips go to shoppers. The complaint, however, is focused on ways that Instacart may have made users think they were tipping while actually paying service fees that go towards operations.

—Updated at 5:44 p.m.