Is the Aplus Partnership taxable for federal income tax purposes?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
the market price of our common units on the grant date. We amortize the grant-date fair value of these awards over their vesting period using the straight-line method. Expenses related to unit-based compensation are included in general and administrative expenses.
Income Taxes
The Partnership is a publicly traded limited partnership and is not taxable for federal and most state income tax purposes. As a result, our earnings or losses, to the extent not included in a taxable subsidiary, for federal and most state purposes are included in the tax returns of the individual partners. Net earnings for financial statement purposes may differ significantly from taxable income reportable to Unitholders as a result of differences between the tax basis and financial basis of assets and liabilities, differences between the tax accounting and financial accounting treatment of certain items, and due to allocation requirements related to taxable income under our Partnership Agreement. We do not have access to information regarding each partner's individual tax basis in our limited partner interests.
As a publicly traded limited partnership, we are subject to a statutory requirement that our "qualifying income" (as defined by the Internal Revenue Code, related Treasury Regulations and IRS pronouncements) exceed 90% of our total gross income, determined
on a calendar year basis. If our qualifying income were not to meet this statutory requirement, the Partnership would be taxed as a corporation for federal and state income tax purposes. For the years ended December 31, 2023, 2022 and 2021, our qualifying income met the statutory requirement.
Source: Item 22 — CONTRACTS (FDD page 68)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, the Partnership is generally not taxable for federal income tax purposes. As a publicly traded limited partnership, Aplus's earnings or losses are included in the tax returns of the individual partners, to the extent that these earnings or losses are not included in a taxable subsidiary. However, Aplus conducts certain activities through corporate subsidiaries, such as Sunoco Retail, Aloha, and Peerless, which are subject to federal, state, local, and foreign income taxes.
As a publicly traded limited partnership, Aplus must ensure that its "qualifying income" exceeds 90% of its total gross income, as defined by the Internal Revenue Code. Should Aplus fail to meet this requirement, the Partnership would be taxed as a corporation for federal and state income tax purposes. For the years ended December 31, 2023, 2022 and 2021, Aplus's qualifying income met the statutory requirement.
Prospective franchisees should be aware that while the Aplus Partnership itself may not be directly subject to federal income tax, its corporate subsidiaries are. Additionally, the individual tax obligations of partners will be affected by Aplus's earnings and losses. It is important for potential franchisees to consult with tax professionals to understand the full implications of this structure on their personal tax situations.