Is a Desi District franchisee required to pay all taxes when due?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
- (h) Taxes. Franchisee will be responsible for all sales taxes, use taxes, and other taxes imposed on the fees payable by Franchisee to Desi District Franchise Group or its affiliates and on services or goods furnished to Franchisee by Desi District Franchise Group or its affiliates, unless the tax is an income tax assessed on Desi District Franchise Group or its affiliates for doing business in the state where the Business is located.
will sign a bill of sale for the purchased assets and any other transfer documents reasonably requested by Desi District Franchise Group. If Desi District Franchise Group exercises the purchase option, Desi District Franchise Group may deduct from the purchase price: (a) all amounts due from Franchisee; (b) Franchisee's portion of the cost of any appraisal conducted hereunder; and (c) amounts paid or to be paid by Desi District Franchise Group to cure defaults under Franchisee's lease and/or amounts owed by Franchisee to third parties. If any of the assets are subject to a lien, Desi District Franchise Group may pay a portion of the purchase price directly to the lienholder to pay off such lien. Desi District Franchise Group may withhold 25% of the purchase price for 90 days to ensure that all of Franchisee's taxes and other liabilities are paid. Desi District Franchise Group may assign this purchase option to another party.
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to Desi District's 2024 Franchise Disclosure Document, franchisees are responsible for all sales, use, and other taxes imposed on fees payable to Desi District or its affiliates, as well as on services or goods furnished to the franchisee by Desi District or its affiliates. The only exception is income tax assessed on Desi District or its affiliates for conducting business in the state where the franchisee's business is located. This means that franchisees must budget for and remit all applicable taxes related to their operations and payments to the franchisor.
This obligation is a standard practice in franchising, where the franchisee typically operates as an independent business owner. Franchisees should consult with a tax advisor to ensure compliance with all relevant tax laws and regulations. Failure to pay these taxes could result in penalties and legal issues for the franchisee.
Furthermore, if Desi District exercises its purchase option upon termination or transfer of the franchise, it may withhold 25% of the purchase price for 90 days to ensure that all of the franchisee's taxes and other liabilities are paid. This clause underscores the importance of franchisees maintaining meticulous records and fulfilling all tax obligations to avoid complications during a potential sale of the business back to Desi District.