For the Carls franchise, what is included and excluded from Gross Sales when calculating the royalty fee?

According to the 2024 FDD, Carls calculates the royalty fee based on Gross Sales, which includes all revenue from the sale of services and products, with a specific exclusion and inclusion. Gross Sales encompasses all income of every kind and nature related to the franchised restaurant, whether the payment is in cash or credit, and regardless of whether the payment has been collected for credit sales. This broad definition ensures that nearly all revenue streams contribute to the royalty calculation.

However, there are specific items that are excluded from Gross Sales for the purpose of calculating the royalty fee. Sales taxes or other taxes collected from customers by the franchisee for transmittal to the appropriate taxing authority are not included in Gross Sales. This exclusion prevents franchisees from paying royalties on funds that are simply pass-through collections for tax purposes.

Conversely, revenue from the sale of stored value gift cards or gift certificates is excluded initially, but the revenue is included when gift certificates are redeemed or stored value gift cards are debited. This approach ensures that Carls receives its royalty when the actual goods or services are provided in exchange for the gift cards, rather than when the gift cards are initially sold. The only product excluded from gross sales is CJR approved promotional items.