This class action lawsuit claims that LuLaRoe’s online point-of-sale payment platform, called “Audrey,” automatically charges customers sales tax based on the location of LuLaRoe’s consultant who made the sale, not the laws of the tax authority of the “ship to address.”
Sales tax is a consumption tax on the purchase of goods or services assessed by some states and municipalities. A retail transaction is only subject to sales tax in the taxing authority where the goods are delivered. For example, when a buyer and seller reside in the same state, and the buyer takes possession of the purchased goods in that state, the sales tax laws of the buyer and seller’s state govern the transaction. On the other hand, when 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.
LuLaRoe is a multilevel-marketing company that sells clothing through fashion consultants located in all fifty states. It requires its consultants to process sales through a proprietary, online point-of-sale payment platform called “Audrey.” The consultants have no ability to control or adjust the sales tax that Audrey applies to each transaction. Instead, Audrey automatically charges customers sales tax based on the location of the consultant who made the sale, not the laws of the taxing authority of the “ship to address.”
This practice is very problematic because many taxing authorities do not charge sales tax or exempt clothing from sales tax. As a result, when a buyer purchases LuLaRoe’s clothing in an area that does charge sales tax, but the purchase is delivered into a jurisdiction that does not charge sales tax, Audrey overcharges the buyer in the guise of a sales tax that does not exist.
One plaintiff in this lawsuit, Rachael Webster, is a resident of Pennsylvania. Webster made at least 12 separate purchases from LuLaRoe’s consultants located in an area that charges sales tax on clothing. The consultants delivered these purchases to Webster’s home. Notably, Pennsylvania is a state that does not charge sales tax on the clothing that Webster purchased. Audrey charged Webster a nonexistent sales tax on all of these 12 purchases. For these purchases, Webster paid a total of $585.16. LuLaRoe charged her $35.16 for “sales tax” on these products. These funds are not an authorized tax and the money was never paid to or held in a trust for the Pennsylvania State Taxing Authority. Instead, LuLaRoe either kept the $35.16 or paid it to taxing authorities outside of Pennsylvania, which have no jurisdiction to assess sales tax on purchases shipped to Pennsylvania.
Based on the facts of the case, the plaintiffs in this lawsuit allege the following violations: