Are sales taxes collected from customers included in Carvel's definition of Net Sales?
Carvel Franchise · 2025 FDDAnswer from 2025 FDD Document
Net Sales will not include (a) the initial sales or reloading of gift cards, (b) discounts, (c) the sale of food or merchandise for which refunds have been made in good faith to customers, (d) the discounted portion of employee meals, (e) sales, meals, use or excise tax imposed by a governmental authority directly on sales and collected from customers, provided that the amount for the tax is added to the selling price or absorbed therein and is actually paid by you to a governmental authority, (f) the sale of equipment used in the operation of the Franchised Business, or (g) tips.
Source: Item 23 — Receipts (FDD pages 100–353)
What This Means (2025 FDD)
According to Carvel's 2025 Franchise Disclosure Document, net sales do not include sales taxes collected from customers, provided that the tax amount is added to the selling price or absorbed therein and is actually paid to a governmental authority. This means that Carvel franchisees will not pay royalty fees or advertising contributions on the portion of revenue collected to cover sales tax.
This exclusion of sales tax from net sales is a benefit to the franchisee, as it lowers the base upon which royalty fees and advertising contributions are calculated. The franchisee is responsible for ensuring that the sales tax is both collected from customers and properly remitted to the appropriate governmental authority to qualify for this exclusion.
It is common practice in the franchise industry to exclude sales taxes from the calculation of net sales for the purpose of determining royalty and advertising fees. This ensures that franchisees are not paying fees on money that is simply being passed through to the government.