How does the PTE Tax paid by Beggars Pizza reduce each member's federal taxable income?
Beggars_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
| 2024 | 2023 | 2022 | ||
|---|---|---|---|---|
| Royalty | $ | 115,268 | $ 120,986 | $ 115,531 |
| receivable–contract revenue | ||||
| Deferred revenue | $ | 25,000 | $ 25,000 | $ 37,500 |
| (for recognition | ||||
| the following year): | ||||
| Initial franchise fees |
1. Summary of Significant Accounting Policies (cont'd)
Income Taxes – The Company elected to pay Illinois Pass-Through Entity ("PTE") Tax ("PTE Tax") on behalf of the members. This tax is assessed as 4.95% of our business income and is applied to reduce each member's proportionate share of federal taxable income reportable on that member's personal income tax return. Accordingly, each member recognizes a federal income tax benefit as if the member's state income tax were fully deductible on the member's personal federal income tax return. Since the income tax benefits associated with the PTE Tax exclusively benefit the members, each member's proportionate share of the tax is recognized as a distribution to that member. Each of the member's distributions include $30,856 and $39,863 representing t
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Beggars Pizza's 2025 Franchise Disclosure Document, the company elects to pay Illinois Pass-Through Entity (PTE) Tax on behalf of its members. This tax is assessed at 4.95% of Beggars Pizza's business income. The PTE tax payment is structured to provide a federal income tax benefit to each member, as if their state income tax payments were fully deductible on their personal federal income tax returns. This arrangement allows members to effectively reduce their federal taxable income.
Each member's proportionate share of the PTE Tax is recognized as a distribution to that member. For example, the FDD indicates that each member's distributions included $30,856 and $39,863 representing that member's share of the PTE Tax paid on their behalf for the years ended December 31, 2024 and 2023, respectively. This means that the member is treated as having received a distribution from the company equal to their share of the PTE tax paid.
For a prospective Beggars Pizza franchisee, this pass-through tax arrangement could be a significant benefit, potentially lowering their overall federal tax liability. However, it's important for potential franchisees to consult with a tax professional to fully understand the implications of the PTE tax and how it would affect their individual tax situation. The specific amount of the tax benefit will depend on the franchisee's individual income and tax bracket.