Why is no provision made in Embassy Suites By Hilton's accounts for U.S. income taxes?
Embassy_Suites_By_Hilton Franchise · 2025 FDDAnswer from 2025 FDD Document
No provision is made in our accounts for U.S. income taxes because for U.S. income tax purposes, we are treated as a disregarded entity and all items of taxable income and expense are included in the computation of taxable income of Hilton. The results of operations reflected in the accompanying statements of comprehensive income and member's equity may differ from amounts reported in Hilton's federal income tax returns because of differences in accounting policies adopted for financial and tax reporting purposes.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites By Hilton's 2025 Franchise Disclosure Document, the company does not make provisions for U.S. income taxes in its accounts. This is because, for U.S. income tax purposes, Embassy Suites By Hilton is treated as a disregarded entity. As a disregarded entity, all items of taxable income and expense are included in the computation of taxable income of Hilton.
This means that the financial results reflected in Embassy Suites By Hilton's statements of comprehensive income and member's equity may differ from the amounts reported in Hilton's federal income tax returns. These differences arise due to variations in accounting policies adopted for financial and tax reporting purposes.
For a prospective Embassy Suites By Hilton franchisee, this information indicates that the franchisee is not directly responsible for the franchisor's U.S. income taxes. However, it's important to understand how Hilton's overall tax strategy and accounting practices might indirectly affect the franchise system. Franchisees should consult with a financial advisor to fully understand the implications of this arrangement.