LuLaRoe is one of the country’s largest multi-level marketing companies, selling women’s clothing through social media and “pop-up” home parties. Consultants purchase inventory directly from LuLaRoe, and then sell it through an online platform with the intention of making anywhere between 100% to 110% profit margin on each sale, depending on each product’s markup.
There has been some confusion among both consultants and customers about the LuLaRoe sales tax policy. In short, consultants are responsible for charging sales tax to their customers in accordance with the tax rate of the state in which the customer lives. Customers will see the sales tax, if any, added to their total purchase price before approving payment through the LuLaRoe vendor system. Keep reading for more specific information regarding the LuLaRoe sales tax policy.
LuLaRoe’s Sales Tax Policy: Information for Customers
When LuLaRoe customers purchase a product, they will be charged the sales tax applicable to their state of residence. The sales tax is added to the amount of the purchase price and charged immediately, so it’s not something customers should need to worry about when they’re making a purchase.
Just for reference, in case you’d like to calculate the sales tax ahead of placing an order, below are each state’s sales tax rates or exemptions from state sales tax for clothing:
- Alabama: 4%
- Alaska: 0%
- Arizona: 5.6%
- Arkansas: 6.5%
- California: 7.25%
- Colorado: 2.9%
- Connecticut: 6.35%
- Delaware: 0%
- Florida: 6%
- Georgia: 4%
- Hawaii: 4%
- Idaho: 6%
- Illinois: 6.25%
- Indiana: 7%
- Iowa: 6%
- Kansas: 6.5%
- Kentucky: 6%
- Louisiana: 5%
- Maine: 5.5%
- Maryland: 6%
- Massachusetts: Exempt from state sales tax (up to $175 per item)
- Michigan: 6%
- Minnesota: Exempt from state sales tax
- Mississippi: 7%
- Missouri: 4.225%
- Montana: 0%
- Nebraska: 5.5%
- Nevada: 6.875%
- New Hampshire: 0%
- New Jersey: Exempt from state sales tax
- New Mexico: 5.125%
- New York: Exempt from state sales tax (up to $110 per item)
- North Carolina: 4.75%
- North Dakota: 5%
- Ohio: 5.75%
- Oklahoma: 4.5%
- Oregon: 0%
- Pennsylvania: Exempt from state sales tax
- Rhode Island: Exempt from state sales tax (up to $250 per item)
- South Carolina: 6%
- South Dakota: 4.5%
- Tennessee: 7%
- Texas: 6.25%
- Utah: 5.95%
- Vermont: Exempt from state sales tax
- Virginia: 5.3%
- Washington: 6.5%
- West Virginia: 6%
- Wisconsin: 5%
- Wyoming: 4%
- District of Columbia: 5.75%
LuLaRoe’s Sales Tax Policy: Information for Consultants
When a consultant sells a product, he or she uses LuLaRoe’s portal site, Audrey, to collect the funds. When the funds are collected, a small credit card processing fee is charged, as well as a sales tax (see more below). The remainder is deposited into the consultant’s checking account after approximately 2 – 3 days of processing time.
While the process may seem simple enough, there has been some confusion as to how a consultant should charge sales tax. Because sales tax is dependent on the state where the customer lives (not on where the consultant lives), it can be cumbersome to research sales tax policy for consultants who have orders coming in from many different states. For that reason, LuLaRoe uses the Audrey software to conduct its transactions. The software is programmed with sales tax rates for each state. When a transaction is processed by the consultant, he or she will simply need to follow LuLaRoe’s instructions for charging sales tax — and it all comes down to the “tax” checkbox on the transaction page.
Charging Sales Tax for In-State Customers
When selling to customers who live in the same state as the consultant, the consultant needs to check the “tax” checkbox when processing the transaction. As a result of checking this box, sales tax will be charged according to the consultant’s home address as listed in his or her Audrey settings.
Charging Sales Tax for Out-of-State Customers
When selling to customers who live in a different state than the consultant, the consultant needs to uncheck the “tax” box. In doing so, the Audrey system recognizes not to charge the consultant’s state sales-tax rate to the buyer. Instead, the final sales tax rate is assessed against the “ship to” address. The consultant will be able to input his or her customer’s information before finalizing payment, and the Audrey system will automatically calculate the appropriate tax.
Filing State and Federal Income Taxes as a LuLaRoe Consultant
According to an in-depth analysis of income taxes for consultants on the ShopTheRoe blog, LuLaRoe sellers typically receive a 1099 form from the company. However, this may not apply to all consultants: LuLaRoe blogger Kate Crump explains that consultants must make over $600 in commissions to get a 1099. Note that commissions are different from sales profits. The $600 minimum must be earned through the consultant’s downline, or team — not on product sales.
If consultants don’t receive a 1099, they are expected to self-report all their LuLaRoe income and pay federal income taxes accordingly. Although LuLaRoe doesn’t take income taxes out of consultants’ commission checks, the company does withhold state sales tax on commissions, which it then pays to the state in which the consultant resides.
The LuLaRoe Sales Tax Policy: Conclusion
Although LuLaRoe has been accused of charging incorrect sales tax to its customer in the past, it is now working to make the sales process easier for consultants selling to out-of-state buyers. In a statement to CBS MoneyWatch, a LuLaRoe spokesperson blamed a technology system failure for the sales tax problem that led to a recent lawsuit. LuLaRoe is working to ensure that all affected customers are refunded for sales tax overcharges. It seems that customers and consultants can expect smoother sailing ahead when it comes to the LuLaRoe sales tax process.