After Non-Certification, LuLaRoe Facing New Class Action in Alaska Over Unlawful Sales Tax

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Out of Alaska federal court comes a proposed class action that accuses LuLaRoe of imposing an unlawful sales tax on consumers residing in tax-free jurisdictions in Alaska. The filing comes not even a month after the federal judge overseeing a related case, Webster v. LLR, Inc., denied class certification “based on the variations in state laws that would have to be addressed with the eleven subclasses.” Rather than attempting to include residents of 11 different states, this case seeks to cover a proposed class of Alaska residents in tax-free jurisdictions who were allegedly charged unlawful sales tax on their LuLaRoe purchases.

Filed against LLR, Inc. and LuLaRoe, LLC, the lawsuit claims the clothing retailer discovered issues with its point-of-sale system, Audrey, in January 2016 that were causing LuLaRoe to pay sales tax on all transactions. To address the problem, the defendants reportedly announced in April 2016 a change in the companies’ tax policy that the suit says was “designed to wrongly shift the overpayments caused by the failures of LuLaRoe’s Audrey system from LuLaRoe to its end consumers.” Under the new policy, the complaint explains, sales tax would be charged based on the retailers’ location rather than where the products were delivered because, as stated in the company’s “white paper” memorandum, “it is as if the customer is purchasing from the retailers’ homes.”

The lawsuit charges that LuLaRoe knew this new policy ran contrary to state tax laws yet assured retailers of its legality and insisted that they continue charging the unlawful sales taxes. It was only a month after the tax policy went into effect that the defendants reportedly began receiving complaints from state attorneys general demanding that LuLaRoe cease its unlawful conduct, according to the lawsuit. In response to the Pennsylvania Attorney General, the defendants reportedly admitted they knew they were overcharging consumers yet made no changes to their policy and continued misapplying sales taxes until June 2017.

Only after the unwelcome swell of media attention that accompanied the February 2017 Webster lawsuit did LuLaRoe announce it had been experiencing issues with its POS system and planned to refund consumers who were unlawfully charged sales tax, the complaint points out.

“LuLaRoe claims that it had a ‘plan’ to refund the improper charges to all class members at some unknown future point, but did not actually undertake to make refunds to the class members until after the Complaint was filed,” the case charges.