How does Bang Cookies require a franchisee to compensate them for taxes imposed on the royalty fee?
Bang_Cookies Franchise · 2024 FDDAnswer from 2024 FDD Document
Note 2: Royalty Fees – The royalty fee is a continuing weekly fee equal to 6% (the "Royalty Rate") of your weekly Gross Sales. If any federal, state or local tax other than an income tax is imposed on the Royalty Fee which we cannot directly and, dollar for dollar, offset against taxes required to be paid under any applicable federal or state laws, you must compensate us in the manner prescribed by us so that the net amount or net effective Royalty Fees received by us is not less than 6% of your Gross Sales.
Source: Item 6 — OTHER FEES (FDD pages 13–17)
What This Means (2024 FDD)
According to Bang Cookies's 2024 Franchise Disclosure Document, if any federal, state, or local tax (excluding income tax) is imposed on the 6% royalty fee, and Bang Cookies cannot directly offset this tax against taxes they are required to pay under applicable federal or state laws, the franchisee must compensate Bang Cookies. The manner of compensation will be as prescribed by Bang Cookies to ensure that the net effective royalty fees received by them are not less than 6% of the franchisee's Gross Sales.
In simpler terms, if a new tax is levied on the royalty payments that Bang Cookies receives from its franchisees, and Bang Cookies cannot use this tax as a credit or deduction against their own tax obligations, the franchisee will have to cover the cost of the tax. This ensures that Bang Cookies continues to receive the full 6% royalty fee, regardless of any new taxes. The specific method for compensating Bang Cookies for these taxes will be determined by Bang Cookies at the time the tax is imposed.
This provision protects Bang Cookies from bearing the burden of unexpected taxes on royalty fees. However, it places the financial risk of such taxes on the franchisee. It is important for prospective franchisees to understand that their royalty obligations could increase if new taxes are introduced. Franchisees should seek clarification from Bang Cookies regarding the specific methods they might use to collect such taxes and how these methods could impact their profitability.