LuLaRoe Class Action Lawsuit Filed Over Improper Sales Tax Collection

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LLR Inc. d/b/a LuLaRoe has been hit with a class action lawsuit accusing the company of improperly collecting sales taxes from customers in jurisdictions that do not impose sales tax.

According to the improper sales tax class action lawsuit, LuLaRoe is a multilevel marketing company that sells shirts, dresses, skirts and leggings. There are more than 35,000 LuLaRoe fashion consultants who sell LuLaRoe clothing in the United States. The company’s consultants are required to process sales through a point-of-sale payment platform called “Audrey.”

The Audrey system automatically charges sales tax to customers based on the location of the LuLaRoe consultant instead of the shipping address, the LuLaRoe class action lawsuit asserts. This practice violates the laws of the taxing authority that covers the shipping address, according to plaintiff Rachael Webster.

“Defendant overcharges buyers up to 10.25% every time a consultant who lives in a jurisdiction that taxes clothing makes a sale where delivery is made to a jurisdiction that does not,” the LuLaRoe class action lawsuit says. Webster cites Chicago’s sales tax on clothing, which is reportedly the highest in the nation.

The sales tax collection class action lawsuit asserts LuLaRoe is aware of the sales tax collection and assessment procedures, and informed its consultants in 2015 that all sales tax would be assessed based on the shipping address which is entered into the Audrey system before the customer’s payment is finalized.

However, Webster asserts that LuLaRoe’s sales consultants actually have no ability to control or adjust the sales tax Audrey applies to the transactions. In 2016, LuLaRoe’s CEO reportedly explained that customers would be assessed sales tax based on the consultant’s location, not the customer’s shipping address.

“Defendant’s failure to calculate tax based on the buyer’s ship to address is problematic because many taxing authorities do not charge sales tax, or exempt clothing from sales tax, on purchases made or shipped to their tax jurisdiction,” the LuLaRoe class action lawsuit states.

Therefore, customers who live in a jurisdiction that does not charge a sales tax and who purchase LuLaRoe clothing from a consultant in a jurisdiction that charges a sales tax will be overcharged, Webster claims. Further, LuLaRoe allegedly does not provide the overcharge to the taxing authority that governs the transaction.

Webster says she has made several purchases from a LuLaRoe consultant and had the items delivered to her home address in Pennsylvania. The state of Pennsylvania reportedly does not impose sales tax on the clothing sold by LuLaRoe, according to the LuLaRoe class action lawsuit.

“For these purchases, Plaintiff paid a total of $585.16, of which Defendant overcharged her $35.16 in the guise of an ostensible ‘sales tax,’” the LuLaRoe class action lawsuit states. Webster claims that LuLaRoe either fraudulently obtained the $35.16, or remitted it to taxing authorities outside of the state of Pennsylvania which did not have the authority to assess a sales tax on the LuLaRoe merchandise shipped to a Pennsylvania address.

The LuLaRoe class action lawsuit asserts claims for breach of constructive trust, unjust enrichment, violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, conversion and misappropriation.

Webster is represented by R. Bruce Carlson, Gary F. Lynch, Kevin Abramowicz and Kevin W. Tucker of Carlson Lynch Sweet Kilpela & Carpenter LLP and Kelly K. Iverson of Cohen & Grigsby PC.

The LuLaRoe Sales Tax Class Action Lawsuit is Rachael Webster v. LLR Inc. d/b/a LuLaRoe, Case No. 2:17-cv-00225, in the U.S. District Court for the Western District of Pennsylvania.

UPDATE: On Dec. 6, 2017, the plaintiffs in a class action lawsuit challenging LuLaRoe’s sales tax calculation practices asked a judge to grant Class certification.