Fashion faux pas? MLM company LuLaRoe sued in Alaska over sales taxes.

Karena Perry models a pair of leggings she purchased from a LuLaRoe representative. (Photo by Matt Miller/KTOO)

LuLaRoe clothing is known for soft, stretch knit items like leggings and skirts. It’s also a multi-level marketing company, like Mary Kay or Herbalife, and customers can buy clothing from their friends who are LuLaRoe representatives or from online sellers outside Alaska.

A lawsuit has been filed in Alaska claiming that the company unfairly collected sales taxes. But LuLaRoe doesn’t believe the lawsuit will go anywhere.

One of Karena Perry’s favorite pairs of LuLaRoe leggings features a cool, red-and-black triangle design. The Juneau resident also owns several other pairs that feature octopus, fish and other abstract designs.

Perry said the texture was a big selling point.

“That’s how they market them. Buttery soft, actually,” Perry said while laughing.

Perry recalls that LuLaRoe leggings were a huge craze a few years ago. A lot of people sought out the limited designs to the point of making them collector’s items, like designer sunglasses or Air Jordan sneakers.

“More than anything, it became a little competitive to get certain patterns,” Perry remembered.

Perry bought four pairs from a LuLaRoe seller in Juneau. She wasn’t charged local sales tax for those.

She also bought two pairs from an Anchorage seller who added a total of $2.80 for sales and shipping taxes. Perry assumed those taxes went to Juneau, but she didn’t know for sure. The receipt didn’t specify who was collecting that tax.

And she’s not the only one who’s confused about LuLaRoe’s inconsistent sales tax collection policy. Other Alaskans suspect they were charged sales tax, even though Alaska doesn’t have a statewide sales tax. And lots of cities in Alaska, including Anchorage, don’t have one either.

Receipt from one of Karena Perry’s LuLaRoe purchases shows sales tax and shipping tax charges. (Courtesy of Karena Perry)

Anchorage resident Katie Van was charged sales taxes on clothing she bought from outside of Alaska. She’s now the plaintiff in a potential class action lawsuit.

“The defendant knew what it was doing was illegal, but didn’t take any steps to remedy it,” said James Davis Jr., an attorney with the Northern Justice Project, a public interest law firm in Anchorage which filed a lawsuit against LuLaRoe on behalf of Van. “Our rough calculations are that the amount of illegal sales tax collected by the defendant (was) in the millions of dollars. So there’s a lot of money that the defendant stole or illegally took from thousands of Alaska consumers by way of this purported Alaska statewide sales tax.”

Davis said they are alleging that LuLaRoe engaged in unfair or deceptive practices and misappropriated all the sales taxes they collected.

They want refunds of all unfairly collected taxes. They also want LuLaRoe to pay damages of $500 to each Alaska buyer for each instance they were overcharged sales tax.

LuLaRoe admits some customers were overcharged. They say a previous version of their sales tax automation software had trouble keeping track of 20,000 different taxing jurisdictions nationwide.

But Steven Graham, an attorney representing the company, said they fixed that.

“All that money is held in a segregated tax account. It’s not profit. It’s not money earned by LuLaRoe,” Graham said. “LuLaRoe acts as an agent for all of these different state taxing jurisdictions.”

LuLaRoe also said they refunded $8.4 million of over-collected sales tax to all their customers. That included $255,483.35 that was returned just to Alaskans.

Largely because of those measures, Graham said a Pennsylvania judge already dismissed an identical lawsuit filed against LuLaRoe.

“With the refund program that had been in place and, at that time, fully developed, fully paid out with everyone getting back literally 100 percent of their money without having to do anything, that was found to be a superior remedy,” Graham said.

LuLaRoe said Van was already refunded $531.25, and they’re asking U.S. District Court Judge H. Russel Holland to dismiss her case.

Van’s lawyer said she received “small, unauthorized deposits,” but she’s not sure if she got everything she was owed. She also didn’t receive any interest or compensation for damages.

The next hearing in the case is Feb. 28. If it moves ahead, then it could become a class action lawsuit in which all similarly affected Alaska buyers of LuLaRoe clothing would essentially become plaintiffs in the case.

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Matt Miller is a reporter at KTOO in Juneau.

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