LulaRoe Faces Class Action Lawsuit Over Sales Tax Charges

by Maria Guido
Originally Published: 
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If your LulaRoe consultant is charging you sales tax, they may be inadvertently ripping you off

Everyone’s favorite purveyor of brightly-colored leggings is in some trouble. LulaRoe is facing a federal lawsuit for charging its customers sales tax in states that don’t levy a tax on clothing.

The majority of states have some sort of sales tax — not all though. Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont all have varying exemptions on clothing. When you purchase goods online, you only pay tax on those goods if the state where you reside has a sales tax. But, according to CBS, “LuLaRoe’s independent representatives are required to use a proprietary online point-of-sale software called “Audrey” that automatically charges customers sales tax based on the location where the salesperson is based rather than the taxing authority where the customer is located.”

“[LuLaRoe’s] sales tax assessment practices, in effect, are improperly and fraudulently adding a surcharge to purchases, and are disguising those surcharges as a ‘sales tax’ that does not exists, and for which [LuLaRoe] lacks authority to collect or remit,” the lawsuit, obtained by argues. “The ‘sales tax’ surcharge is more than the price advertised online for the product and purchasers do not become aware of this overcharge until Audrey sends them an invoice.”

The plaintiff in the case is a woman from Pennsylvania, who was charged $35.16 worth of sales tax on a dozen LuLaRoe purchases she made in 2016. Pennsylvania doesn’t tax clothing sales.

“My suspicion is that there is a substantial percentage of consumers who make purchases from LuLaRoe through out-of-state ‘consultants,’” one of the lawyers representing the woman who is suing LulaRoe told CBS. “Because of that, I think the potential damages could be substantial.”

“We are fully aware of this issue and have invested significant resources to address it,” LuLaRoe told CBS. “When affected customers have contacted us to identify their proper location, we have immediately issued them a refund for sales tax overcharges.”

The lawsuit states, “In or around October 2015, LuLaRoe notified its consultants, stating: When we finalize the taxation element of Audrey, all sales tax will be assessed against the ship to address and you will be able to input your customer’s information before you finalize payment and have it calculate the appropriate tax. This next step will continue to align us with our belief in being a good corporate tax citizen by helping facilitate the collection of sales tax on products sold and received across the country.”

That sounds like a good plan, but as the lawsuit states, there are some problems. First,”Audrey is Defendant’s proprietary, online point-of-sale system through which Defendant processes all sales that its consultants make.” Second, “Defendant’s fashion consultants have no ability to control or adjust the sales tax that Audrey applies to each transaction.” Third, “Instead, Defendant has configured Audrey to automatically charge customers sales tax based on the location of Defendant’s consultant who made the sale, and not the laws of the taxing authority where Defendant delivered the purchase, i.e. the ‘ship to address.'”

The lawsuit also states, “As Defendant’s CEO, Mark Stidham, explained in 2016: ‘Your customers will be charged the sales tax from your state, city and/or county, not theirs. If you live in a state where sales tax does not apply, then your customer will not be charged any sales tax. State laws require us to collect this and in order to comply with the reporting they have instructed us to provide them relative to your sales and we have found this method to be the most efficient for now.'”

The Better Business Bureau, which sets standards for ethical business behavior and monitors compliance, assigns A to F ratings for businesses. They’ve given LulaRoe an F, based on customers flooding their page with complaints about the quality of the clothing, incorrect charges, and being unable to reach customer service for complaints. “On July 27, 2016, BBB notified the business of our concerns and requested their voluntary cooperation in eliminating the pattern of consumer complaints,” BBB said on its website. “As of today, the business has not responded to our request.”

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