A class-action lawsuit has been filed against LuLaRoe by a Pennsylvania woman, who alleges that the company has illegally charged thousands of people sales tax on the clothing they have purchased. She herself claims to have bought a dozen pieces of LuLaRoe clothing, and since there is no sales tax on clothing in Pennsylvania, she says that she has been charged illegal taxes.
According to Saving Advice, the woman has spent more than $500 on the popular clothing brand for women. As a result, she has been charged sales tax with every transaction from consultants who sell from a system that is based out of California, the lawsuit alleges.
“Pennsylvania does not charge sales tax on the clothing [LuLaRoe] sells and [the plaintiff] purchased. Yet, throughout 2016, [LuLaRoe’s] payment system, Audrey, charged [the plaintiff] a nonexistent sales tax on these 12 clothing purchases. For these purchases, [the plaintiff] paid a total of $585.16, of which [the defendant] overcharged her $35.16 in the guise of an ostensible ‘sales tax.'”
It has previously been a matter of contention in other states in which no sales tax is charged on clothing items. LulaRoe maintains that the sales tax applies to everyone regardless of where they live, but many accountants and lawyers disagree. Some are fearful that the company may try to place the blame on consultants, who are strongly encouraged to use LulaRoe’s payment system, Audrey, and have previously had no say over whether sales tax was charged.
On a discussion on Class Action, some accountants allege that the company LuLaRoe has known about the tax issue for a year. It first became known in Minnesota, which also does not allow sales tax on clothing. Some in the discussion claim that the ethics of the company are in question and that a year is more than enough time to fix the taxation issue, which they state LuLaRoe has been aware of. A poster named “jpb” expressed their disgust with the fact that the clothing brand, whose motto is “strengthening families and blessing lives,” has allegedly said that it was not possible to fix the illegal taxation issue over the course of the past year.
“A year later is a short time? This is horrible business practice and I am surprised that there isn’t more out cry from Consultants because LLR acknowledges the unfair market that they have created… WOW!! LLR prides themselves on ethics.. and this is how you treat your consultants for a year? I am going to assume you are a consultant that are in a tax free state and were able to capitalize on this.. good for you, but what a horrible company that does that to their consultants…”
Most consultants are stay-at-home mothers who have invested $6,000 to $10,000 on initial inventory that is sold through in-home and Facebook “popup parties.” The wildly popular leggings, dresses, and tunics have been a hit with many who value comfort. Leggings are $25 a pair, while dresses can run as high as $70, and everyone was charged a sales tax, regardless of where they lived. LuLaRoe sales frequently cross state lines, meaning a consultant who lives in Georgia may sell and ship to a customer in Alabama, for example.
If this class action lawsuit is successful, anyone who has bought LuLaRoe clothing in the past may be eligible to be reimbursed for sales tax if they live in a clothing tax-free state, but it remains to be seen who will be responsible for that reimbursement — the company or the consultants themselves, who say they had no control over charging sales tax and that the payment system automatically charged the tax.
LuLaRoe has greatly increased its number of consultants, or sellers of the clothing line, in the past year, and while sellers are encouraged to attend weekly webinars, no formal interview or prior selling experience is needed to sell the clothing. LuLaRoe sells its clothing to the consultant, who is then told by the company how much he or she must charge for each item, and most consultants also claim that they were told sales tax was not optional.
Do you feel that legal taxation methods have been breached? Are you a consultant or buyer of LuLaRoe clothing who would be affected by this lawsuit? Please share your thoughts.
[Featured Image by Joe Raedle/Getty Images]