LuLaRoe Improper Sales Tax Charges New York Class Action

The complaint for this class action alleges that LLR, Inc. and LuLaRoe, LLC charged customers sales taxes on merchandise in jurisdictions where sales taxes are not collected.

The class for this action is all persons who were charged sales tax on clothing purchases from LuLaRoe, through February 16, 2017, whose purchases of clothing cost less than $110 and who had the purchases delivered to a location in New York that does not asses a sales or use tax on such purchases.

According to the complaint, LuLaRoe is a multi-level marketing company that sells clothing through fashion retailers throughout the US.

Sales taxes are collected for the area where goods are delivered. If both the buyer and the seller live in the same state, sales tax is collected for that state. However, if the buyer and seller live in different states, and the seller delivers the goods to the buyer in the buyer’s state, then sales tax is collected for the buyer’s state only.

Also, New York state exempts sales of clothing of under $110 from state sales tax. Clothing sales of less than this amount are exempt from sales tax in many other localities as well, the complaint says.

However, the complaint claims, LuLaRoe shipped exempt clothing purchases to customers who lived in such counties, yet illegally charged them sales tax.

How did this happen? According to the complaint, LuLaRoe implemented a POS system called Audrey around May or June 2015 and required all of its retailers to use it. Before 2016, the complaint says, Audrey had a toggle switch that allowed retailers to turn off tax charges when they were entering sales to tax-free jurisdictions. This prevented improper tax charges to customers.

According to the complaint, in January 2016 the company’s Senior Tax Advisor found that Audrey had the company was paying tax on all sales. Since this included sales to tax-free jurisdictions, the company was overpaying. The complaint claims that the company decided to charge customers tax on all sales, including in tax-free jurisdictions.

The complaint quotes the new tax policy information sent to retailers as saying, “The Sales Tax will be calculated based on where YOU live and do business. This is NOT optional – you must leave the sales box checked…” The complaint claims that the company then adjusted Audrey so that retailers could not turn off the sales tax feature.

This was said to be “short term,” and the complaint alleges that the company sent its retailers a “white paper” claiming it was legal. However, the complaint alleges that the company’s own Ethics Specialist admitted it was “not ethical.”

The complaint says a previously-filed class action in Pennsylvania failed because of complications with laws in different areas. This complaint takes up the matter again, claiming the company’s actions were violations of New York’s General Business Law and included conversion and misappropriation.

Article Type: Lawsuit
Topic: Consumer

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