When must an Ella Cafe franchisee pay taxes on fees payable to the franchisor?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
In addition to all other payments provided for in this Agreement, Franchisee must pay Franchisor and its Affiliates and all of Franchisee's third-party vendors, suppliers, and landlord promptly when due:
(i) All amounts advanced by Franchisor or which Franchisor has paid, or for which it has become obligated to pay on Franchisee's behalf for any reason whatsoever.
(ii) The amount of all sales taxes, use taxes, personal property taxes, and similar taxes, which are or may be imposed upon Franchisee and required to be collected or paid by Franchisee (a) because of Franchisee's Gross Sales, or (b) because of Initial Franchise Fees, Royalty Fees, or advertising fees (and Franchisee Advertising Co-op dues, if any) collected by Franchisor from Franchisee (but excluding ordinary income taxes).
Franchisor, in its discretion, may collect the taxes in the same manner as Royalty Fees are collected and promptly pay the tax collections to the appropriate governmental authority; provided, however, that unless Franchisor so elects, it will be Franchisee's responsibility to pay all sales, use, or other taxes now or hereinafter imposed by any governmental authorities on Initial Franchise Fees, Royalty Fees, and advertising fees.
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, franchisees are responsible for paying sales, use, personal property, and similar taxes that are imposed on them. These taxes must be collected or paid due to the franchisee's gross sales, or because of the initial franchise fees, royalty fees, or advertising fees collected by Ella Cafe from the franchisee. However, this excludes ordinary income taxes.
Ella Cafe has the discretion to collect these taxes in the same manner as royalty fees and promptly remit the tax collections to the appropriate governmental authority. However, if Ella Cafe does not elect to do so, it remains the franchisee's responsibility to pay all applicable taxes on initial franchise fees, royalty fees, and advertising fees.
This means that as an Ella Cafe franchisee, you may be required to collect and pay sales, use, and personal property taxes related to your business operations, including those associated with fees paid to the franchisor. It is important to understand your local and state tax obligations and ensure timely compliance to avoid penalties. Franchisees should clarify with Ella Cafe whether they will collect and remit these taxes on the franchisee's behalf or if the responsibility falls solely on the franchisee.