LuLaRoe Class Action: Alaskan Customers Illegally Charged Sales Tax

A consumer recently filed a class action lawsuit against LuLaRoe, a popular clothing retailer and network marketing company, alleging that the company wrongfully charges sales tax in tax-free jurisdictions of Alaska.

Plaintiff Katie Van claims LuLaRoe LLC and LLR Inc. charged her and other Alaska consumers sales tax based on the location of the retailer.

This practice allegedly fails to account for sales tax-free states such as Alaska, resulting in consumers such as Van being wrongfully charged sales tax. According to the LuLaRoe class action, LuLaRoe charged tax on more than 72,000 sales in Alaska between April 2016 and June 2017.

“LuLaRoe knew its collection of taxes in these jurisdictions was unlawful, but concealed this fact from consumers, actively misleading them regarding the legality of its practice,” Van claims.

The LuLaRoe sales tax class action points to a series of tax policy changes as the cause of the allegedly fraudulent tax charges, starting with the 2015 implementation of Audrey. Audrey was a point of sale system used by the company to better track its taxes. However, the company soon found that the system was programmed in a way that the company ended up overpaying on taxes because the system was accounting for sales tax whether or not the consumer was actually paying sales tax on the transaction.

After realizing they were losing money, LuLaRoe reportedly implemented a new tax policy in which retailers charged sales tax based on retailer location regardless of consumer locations. Van claims that the company followed this change with a memo stating that the fraudulent tax policy was legal.

Numerous attorneys general, including those from Pennsylvania and Minnesota, challenged the new sales tax policy. According to the LuLaRoe class action, LuLaRoe responded to these arguments by admitting that they were overcharging consumers for sales tax in states which did not implement sales tax on the items. However, the company did not correct or discontinue the policy.

“The only logical conclusion is that LuLaRoe unequivocally knew when it instituted its 2016 tax policy that it was not in compliance with the laws and that the operation and effect of the policy would cause harm to its end customers,” the LuLaRoe class action lawsuit states.

In response to public outcry, LuLaRoe has allegedly refunded $255,000 in fraudulently charged sales tax. However, the policy remains in place and the company has not suffered any legal consequences for its “knowing and unlawful conduct,” according to the LuLaRoe sales tax class action lawsuit.

Van seeks to represent a Class of Alaska consumers who were charged sales tax on purchases from LuLaRoe despite the purchase being delivered to a location in Alaska that does not asses sales tax on the items.

The LuLaRoe class action seeks actual damages, disgorgement, compensatory damages, statutory damages, punitive damages, court costs, and attorneys’ fees.

Plaintiffs are represented by Bruce Carlson, Kelly K. Iverson and Kevin W. Tucker of Carlson Lynch Sweet Kilpela & Carpenter LLP; and James J. Davis Jr. and Goriune Dudukgian of the Northern Justice Project LLC.

The LuLaRoe Sales Tax Class Action Lawsuit is Van, et al. v. LLR Inc. d/b/a LuLaRoe, et al., Case No. 3:18­-cv-­00197, in the U.S. District Court for the District of Alaska.

UPDATE: On Oct. 26, 2018, LuLaRoe is fighting a class action lawsuit alleging it improperly charged sales tax by arguing that it refunded all the sales tax at issue.

UPDATE 2: On Nov. 26, 2018, LuLaRoe customers are arguing against a dismissal motion of their sales tax class action lawsuit, saying the refund program isn’t enough to cover actual financial injuries.

UPDATE 3: On Aug. 18, 2020, the sales tax class action lawsuit against LuLaRoe survived a dismissal motion after the judge found the claims were valid.