What happens if a tax is imposed on the Bang Cookies royalty fee that Bang Cookies cannot offset?
Bang_Cookies Franchise · 2024 FDDAnswer from 2024 FDD Document
Tax Obligations: If any federal, state or local tax, other than an income tax, is imposed on the Royalty Fee paid by Franchisee to Franchisor that, Franchisor cannot directly and, dollar of dollar, offset against taxes required to be paid by Franchisor under any applicable federal or state laws, Franchisee must compensate Franchisor in the manner prescribed by Franchisor so that the net amount or net rate received by Franchisor for the Royalty Fee is not less than that which has been established by this Agreement and which was due to Franchisor on the effective date of this Agreement.
Source: Item 23 — RECEIPTS (FDD pages 56–245)
What This Means (2024 FDD)
According to Bang Cookies' 2024 Franchise Disclosure Document, if a federal, state, or local tax (excluding income tax) is imposed on the royalty fee paid by the franchisee to Bang Cookies, and Bang Cookies cannot directly offset this tax against its own tax obligations, the franchisee must compensate Bang Cookies.
This compensation ensures that Bang Cookies receives the net amount or rate for the royalty fee as established in the franchise agreement and due on the agreement's effective date. In simpler terms, the franchisee is responsible for covering the additional tax so that Bang Cookies' royalty income remains unchanged.
This provision protects Bang Cookies from bearing the burden of new taxes levied on royalty fees. For a prospective franchisee, this means that their royalty obligations could increase if such a tax is imposed. It is important to understand the potential tax implications and factor this risk into financial projections. Franchisees should consult with a financial advisor to fully understand the potential impact of this clause.