What is the Alloy franchisee's obligation regarding the payment of additional amounts to cover taxes imposed on Alloy's income?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
You also will pay all federal, state and local taxes, other than taxes as assessed on our income, that may be imposed on us as the result of our receipt or accrual of the Initial Franchise Fee, the Royalty Fees, the Brand Development Fund Fees, or other fees referenced in this Agreement, whether assessed against you through withholding or other means or whether paid by us directly. In either case, you shall pay us (and to the appropriate governmental authority) such additional amounts as are necessary to provide us, after taking such taxes into account (including any additional taxes imposed on such additional amounts), with the same amounts that we would have received or accrued had such withholding or other payment, whether by you or by us, not been required.
Source: Item 23 — RECEIPTS (FDD pages 69–245)
What This Means (2025 FDD)
According to Alloy's 2025 Franchise Disclosure Document, franchisees are responsible for covering taxes, excluding those assessed on Alloy's income. This obligation extends to federal, state, and local taxes that arise from Alloy's receipt or accrual of the Initial Franchise Fee, Royalty Fees, Brand Development Fund Fees, and other fees outlined in the Franchise Agreement.
This means that if any taxes are imposed on Alloy due to the franchisee's payments, the franchisee must pay Alloy an additional amount. This additional payment should be sufficient to ensure that Alloy receives the same amount it would have received if the tax wasn't imposed. This includes covering any further taxes imposed on the additional amounts paid to cover the initial taxes.
In practical terms, this clause ensures that Alloy's net income from franchise fees remains constant, regardless of any taxes imposed on those fees due to the franchisee's payments. The franchisee bears the financial burden of these taxes, which could impact their overall profitability. Prospective franchisees should carefully consider this obligation and factor it into their financial projections.