Under the Internal Revenue Code, how is Black Bear Diner taxed?
Black_Bear_Diner Franchise · 2025 FDDAnswer from 2025 FDD Document
In addition to the Royalty Fee payment, Franchise Fee and other amounts due under the terms of this Agreement, Franchisee shall pay to Franchisor an amount equal to any sales, gross receipts, excise tax or similar tax imposed on Franchisor as a result of the operation of the Franchised Restaurant, unless the tax is an income tax (or its equivalent) otherwise payable by Franchisor. In no circumstances shall Franchisee have any obligation hereunder for any tax assessed which is based upon the net income of Franchisor.
Source: Item 23 — RECEIPT (FDD pages 56–243)
What This Means (2025 FDD)
Based on the 2025 Franchise Disclosure Document, the franchisee, not the franchisor Black Bear Diner, is responsible for paying sales, gross receipts, excise, or similar taxes related to the operation of the franchised restaurant. However, the franchisee is not responsible for income taxes (or its equivalent) that the franchisor must pay.
Black Bear Diner requires franchisees to pay several fees, including a royalty fee and a marketing fund contribution. In addition to these fees, if the operation of the franchised restaurant results in the franchisor owing sales, gross receipts, excise, or similar taxes, the franchisee must pay the franchisor an amount equal to those taxes. This means that franchisees need to be aware of and prepared to cover these potential tax obligations in addition to the standard franchise fees.
This arrangement protects Black Bear Diner from bearing the burden of certain taxes incurred due to the franchisee's operations. However, the franchisee is shielded from the franchisor's income tax obligations. Franchisees should consult with a tax professional to fully understand their tax obligations and how they might be affected by this clause in the franchise agreement.