With a Corona-based clothing distributor facing multiple lawsuits, some critics are questioning the wisdom of the Corona City Council’s August 2017 decision to cut a 40-year tax-sharing deal with LuLaRoe.

City officials counter that the decision was a good one that boosted the town’s coffers and does not pose a risk to Corona taxpayers should the company go out of business.

LuLaRoe, a husband-and-wife-operated fashion wholesaler that markets merchandise through freelance salespeople, was sued in November for nearly $49 million by its primary supplier, which alleged unpaid bills. The lawsuit accused the company and its founders, Mark and DeAnne Stidham, of creating numerous shell companies to hide assets from creditors, and claimed there are reasons to believe LuLaRoe is becoming insolvent.

A LuLaRoe spokesperson said earlier that the suit’s claims were “completely without merit” and would be contested.

In light of the challenges, a former councilman and an unsuccessful 2018 council candidate told the City Council on Jan. 16 that it was a mistake for Corona to make the deal, which provides for periodic payments to the firm out of the city’s general fund.

Multiple attempts to reach the company for comment about the sales tax agreement via phone, email and visits to LuLaRoe’s Corona corporate office and warehouse were unsuccessful.

“They’ve got a lot of lawsuits,” said former Councilman Steve Nolan. “They are a mess.”

Nolan, who has requested documents from the city with the goal of learning the circumstances that led to the deal, asserted that the tax-sharing agreement is not good for the city.

“LuLaRoe’s a multilevel marketing company,” Nolan said. “That doesn’t make sense.”

Joe Morgan, who failed in a November bid to win a council seat, also criticized the deal, calling it “a joke.”

And, Morgan said, “We’ve written almost $900,000 worth of checks so far to LuLaRoe.”

Michele Nissen, assistant city manager, pushed back against the criticism.

“To me, it is a no-brainer when you have someone who is a potentially large sales tax producer,” Nissen said, adding, “cities don’t enter into sales tax agreements to lose.”

As for being a multilevel marketing operation, Nissen said that isn’t an issue.

“It’s a business. They employ people. They sell a product,” she said. “How they structure a business is irrelevant.”

According to records maintained on the city’s website, as of Friday, Jan. 25 the city had written checks totaling $877,989 since approving the deal.

Records show the city paid LaLuRoe $253,321.47 on Jan. 11 to remit the firm’s share of 2018 second- and third-quarter sales tax revenue; $158,217.72 on July 27 for 2018 first-quarter sales tax; $234,065.50 on April 27 for 2017 fourth-quarter sales tax; and $232,384.12 on Jan. 26, 2018 for 2017 third-quarter sales tax.

Nissen said Corona cuts a check to LuLaRoe after the city receives its sales-tax payments for a particular quarter from the California Department of Tax and Fee Administration, and those payments tend to arrive three or more months after being collected.

Nissen and Casey Wells, a spokesman for the Department of Tax and Fee Administration in Sacramento, both declined to reveal the amount of sales tax LuLaRoe has generated, saying that information is confidential under state law.

However, the agreement specifies that Corona shall return to the firm 50 percent of the revenue the city receives as a result of LuLaRoe sales. In 2017, the city estimated the firm would generate $2 million a year.

The package contains an incentive that awards LuLaRoe 60 percent if the amount surpasses $2.5 million in a year — and if the company hires 150 new full-time employees and makes a $51.5 million investment in the community.

At the time of approval, Corona officials said they anticipated paying $40 million in “economic development subsidy” over the 40-year term of the sales-tax sharing agreement. The deal runs through June 2057. LuLaRoe planned to restructure its business and make Corona the “point of sale” for its California sales.

City Manager Darrell Talbert said at the Jan. 16 meeting that LuLaRoe’s problems pose no risk to the city.

“Their sales tax deal stands,” Talbert said. “If they generate a million dollars, we give them their percentage. If they generate $100, we give them their percentage. And if someday they go out of business, it all goes away.”

LuLaRoe isn’t the only company with a tax-sharing deal; Nissen said four other companies have active agreements with the city. Those firms are All-American Asphalt, Downs Energy, Robertson’s Ready Mix and Saul Chevrolet, according to the city’s website.

“These are very typical,” Talbert said, pointing to other cities with tax-sharing deals. “So long as the law allows this, the city of Corona is going to play extremely hard in this arena.”