For Carvel, are federal or state income taxes recognized in the consolidated financial statements?
Carvel Franchise · 2025 FDDAnswer from 2025 FDD Document
prepayment for robotic food kiosks. No impairment losses were recorded for Prepaid Expenses and Other Current Assets for the fiscal year ended December 29, 2024.
Long-term other assets primarily consists of prepayments of commissions, favorable sublease assets, operating lease and utilities deposits, deferred receivables related to operating sublease agreements, and other investments. Investments without a readily determinable fair value are valued at cost.
Long-Term Other Liabilities
Long-term other liabilities primarily consists of asset retirement obligations for the Company's corporate offices and certain SBR locations and unfavorable sublease liabilities.
Income Taxes
The Company is included in the consolidated federal income tax return filed by the Parent and is party to an informal tax sharing agreement between the Parent and other members of the consolidated group. The Company is a single-member LLC and has made an accounting policy election to present a tax provision in accordance with ASC 740 – Income Taxes. Accordingly, the Company accounts for income taxes using the asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that has a greater than 50% cumulative likelihood of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The Company recognized no material amounts for uncertain tax positions during the fiscal years ended December 29, 2024 and December 31, 2023. The Company recognizes interest and penalties related to tax positions, if any, in Income tax expense.
Based on the evaluation of all available information, a net operating loss carryforward deferred tax asset is only recognized to the extent that realizing these benefits is considered more likely than not (see Note 9).
The Company is subject to state franchise taxes in certain states, which are based on either income or equity of the Company. Franchise tax expense is recorded in Selling, general and administrative expenses. The Company is also subject to withholding taxes in certain international jurisdictions.
Advertising
Certain subsidiaries administer the national advertising funds on behalf of the brands' franchise systems (collectively, the "Ad Funds"). The Ad Funds receive contributions from franchisees as required by their franchise agreements and the Company SBRs based upon a percentage of revenues.
Source: Item 23 — Receipts (FDD pages 100–353)
What This Means (2025 FDD)
According to Carvel's 2025 Franchise Disclosure Document, the company recognizes both federal and state income taxes in its consolidated financial statements. Carvel is included in the consolidated federal income tax return filed by its Parent company and adheres to an informal tax sharing agreement within the consolidated group. As a single-member LLC, Carvel has elected to present a tax provision in accordance with ASC 740 – Income Taxes, accounting for income taxes using the asset and liability method. This involves recognizing deferred income taxes for temporary differences between financial statement carrying amounts and tax bases of assets and liabilities, using enacted statutory tax rates applicable in future years.
Specifically, Carvel is subject to state franchise taxes in certain states, which are based on either the company's income or equity. These franchise tax expenses are recorded under Selling, general, and administrative expenses. Additionally, the company faces withholding taxes in some international jurisdictions. The document also mentions that as of December 29, 2024, Carvel had $56,769 of federal net operating loss carryforwards and $114,635 of state net operating loss carryforwards, which expire beginning in 2028.
Management evaluates the likelihood of realizing deferred tax assets, recording a valuation allowance if it's deemed more likely than not that the assets will not be realized. The realization of these deferred tax assets depends on Carvel generating sufficient taxable income in future periods, net of reversing deferred tax liabilities. The company believes it is more likely than not that these deferred tax assets will be realized. For the fiscal year ended December 29, 2024, Carvel paid $12,350 for $13,424 in renewable energy tax credits, which were fully utilized for 2023 and prior tax years. The tax years after 2020 generally remain subject to examination by federal and most state tax authorities, with certain state returns from prior years potentially still open for examination if net operating losses have arisen.