LuLaRoe Hit with Class Action in New York Over Allegedly ‘Fraudulent’ Sales Tax Policy

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LuLaRoe is staring down a proposed class action lawsuit that alleges the company charged unlawful sales tax on clothing orders placed in tax-free jurisdictions in New York.

The plaintiff behind the suit, a New York consumer, claims she was overcharged on at least 13 remote purchases, an oversight the case traces back to January 2016. It was that month, the suit says, when LuLaRoe discovered that a programming error in its point-of-sale (POS) system, called “Audrey,” led the company to overpay on its taxes by erroneously adding sales tax on orders placed in tax-free areas. The following April, the suit continues, the defendants supposedly addressed this “tax dilemma” by enacting a new policy. From the complaint:

“LuLaRoe retailers were instructed not to change the sales tax rate calculated by Audrey, even for remote sales delivered to jurisdictions where the purchases were not taxable.”

As a result of this new policy, the suit says, LuLaRoe customers were automatically charged sales tax no matter if their purchases were not taxable.

According to the lawsuit, clothing purchases totaling less than $110 are exempt from sales tax under New York law. LuLaRoe’s “new” tax policy, the suit argues, improperly charged customers in New York based on whether the seller, not the client, was located in a taxable jurisdiction.

“[W]hen the buyer and seller reside in different states, and the seller delivers the purchased goods from its state to the buyer’s state, the sales tax laws of the buyer’s state govern the transaction,” the case explains.

The suit goes on to allege LuLaRoe lied to both distributors and customers with regard to its new “tax policy,” claiming the move was “proper and legal.”

Notably, the case says the company received notice from Attorneys General from Pennsylvania and Minnesota to “review and correct” its sales practices but continued to overcharge customers. LuLaRoe’s tax policy has been the subject of previous litigation filed in other states over similar claims.