Is the Royalty fee for a Carls Jr. franchise calculated before or after sales taxes are collected?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
If your Franchised Restaurant qualifies for the CJR 2025 Travel Center Development Incentive and you sign a Development Agreement for more than three and up to nine Franchised Restaurants, then we and you will sign the 2025 Travel Center DIP Addendum attached to this Disclosure Document as Exhibit L. Under the terms of the 2025 Travel Center DIP Addendum and with respect to Gross Sales accruing during the applicable Franchised Restaurant's initial term of operation under the Franchise Agreement, we will reduce the royalty fee by (i) 3% of Gross Sales accruing during the Restaurant's first year of operation; (ii) 2% of Gross Sales accruing during the second year of operation; and (iii) 1% of Gross Sales accruing during the third year of operation. After the third year of operation the royalty fee reverts to 5% of Gross Sales. Additionally, the APO fee will be reduced to 3% of Gross Sales for the full 20 year term of the Franchise Agreement. If you or any of your affiliates receive, during the initial term of operation of the Franchised Restaurant under the Franchise Agreement, a written notice of default under any agreement between you or any of your affiliates and CJR or any affiliate of HR and fails to cure the default within the applicable cure period, the CJR 2025 Travel Center DIP Addendum will be terminated and the royalty fee and APO for the Franchised Restaurant will immediately revert to the applicable amounts set forth in the Franchise Agreement.
Source: Item 6 — Other Fees (FDD pages 28–35)
What This Means (2025 FDD)
Based on the 2025 Franchise Disclosure Document, the royalty fee for a Carls Jr. franchise is calculated based on a percentage of Gross Sales. While the FDD excerpts discuss various royalty fee structures and incentives related to the Travel Center Development Incentive Program, it does not explicitly state whether "Gross Sales" are calculated before or after sales taxes are collected. The document details the royalty fee percentages, which can vary from 4% to 5% of Gross Sales depending on specific agreements and incentive programs.
Several factors can influence the royalty fee, including participation in the CJR 2025 Travel Center Development Incentive Program. This program offers reduced royalty fees for a limited time, dependent on the number of franchises developed and the location of the restaurant. For instance, franchisees who sign a Development Agreement for more than three and up to nine Franchised Restaurants may have their royalty fee reduced by 3% of Gross Sales in the first year, 2% in the second year, and 1% in the third year, reverting to 5% thereafter.
Given the lack of explicit information about sales tax, prospective Carls Jr. franchisees should seek clarification from the franchisor regarding the definition of "Gross Sales" and whether it includes sales taxes. Understanding this distinction is crucial for accurate financial planning and royalty fee calculations. Franchisees should also inquire about any other fees related to gross sales, such as advertising contributions, which are also calculated as a percentage of Gross Sales and can be adjusted under certain conditions.