LuLaRoe Subject of Sales Tax Lawsuit

Popular online fashion company LuLaRoe says it has fixed the problem that led to a class-action fraud lawsuit and issued refunds, but plaintiffs attorneys object to the company's actions and are moving forward with the case. Rachael Webster filed her complaint Feb. 17 in the U.S. District Court for the Western District of Pennsylvania, alleging LuLaRoe knowingly overcharged customers in the form of fraudulent sales taxes. Independent sales representatives for LuLaRoe are required to use an online, proprietary point-of-sale system called “Audrey” that automatically adds sales tax according to the location of the salesperson, rather than the customer, and that independent representatives do not have the ability to adjust the sales tax. The complaint alleges that in some cases “the sales tax surcharge is more than the price advertised online for the product and purchasers do not become aware of this overcharge until Audrey sends them an invoice.”

Total Retail's Take: The issue of sales tax collection is proving to be a tricky one for online retailers, from Amazon.com to startups like LuLaRoe. The allegations against LuLaRoe are that it knowingly overcharged buyers “up to 10.25 percent every time a consultant who lives in a jurisdiction that taxes clothing makes a sale where a delivery is made to a jurisdiction that does not,” and of not remitting overcharges to that taxing authority that governs the transaction. LuLaRoe claims its former POS vendor is to blame for the tax errors, saying it "misidentified the accurate location of certain customers.” Regardless, LuLaRoe is ultimately responsible for collecting and remitting the proper sales tax on all purchases. I feel a large settlement may be in the offing as LuLaRoe likely wants to avoid a lengthy court case, one that may not end in its favor.