What is excluded from the definition of 'Gross Sales' when calculating royalties for an Extreme Art Studio franchise?
Extreme_Art_Studio Franchise · 2024 FDDAnswer from 2024 FDD Document
- Royalty. "Gross Sales" means all revenue that you receive from operating your Extreme Art Studio Business and any optional Module(s), including all amounts or other consideration that you receive, directly or indirectly, at or away from the Extreme Art Studio Business, and in the form of cash,
check, credit and debit card, barter exchange, trade credit, or other credit transactions, and including all proceeds from any business interruption insurance. For example, Gross Sales includes the following: (1) all monies you receive from customers, including monies received for the sale of products and services; (2) the amount of gift card redemptions; (3) the proceeds of any business loss or interruption insurance or similar insurance; and (4) any other revenue you derive. Gross Sales are deemed received at the time the products or services from which they were derived are delivered or rendered, or at the time the relevant sale takes place, whichever occurs first, regardless of whether final payment (e.g., collection on an account receivable) actually has been received. Gross Sales does not include any federal, state, or municipal sales, use, or service taxes collected from customers and paid to the appropriate taxing authority, or any customer tips.
Source: Item 6 — OTHER FEES (FDD pages 13–18)
What This Means (2024 FDD)
According to Extreme Art Studio's 2024 Franchise Disclosure Document, the calculation of gross sales for royalty payments excludes specific items. Gross sales encompass all revenue received from operating the Extreme Art Studio business, including cash, checks, credit and debit card payments, barter exchanges, trade credits, and proceeds from business interruption insurance. This includes monies received from customers for products and services, gift card redemptions, and any other revenue derived. Gross Sales are deemed received when products or services are delivered or rendered, or when the sale takes place, regardless of when final payment is received.
However, the definition of gross sales for Extreme Art Studio explicitly excludes certain taxes and customer tips. Specifically, any federal, state, or municipal sales, use, or service taxes collected from customers and then paid to the appropriate taxing authority are not included in gross sales. Additionally, any customer tips received by the franchisee are also excluded from the gross sales calculation.
This exclusion is beneficial for prospective Extreme Art Studio franchisees because it reduces the base amount on which royalties are calculated. By excluding sales taxes and customer tips, the franchisee pays royalties on a smaller, net revenue figure, which can lead to lower royalty payments and increased profitability. This is a fairly standard practice in franchising, as it ensures franchisees are not paying royalties on funds they are merely collecting on behalf of the government or that are intended for employees.