Is Extreme Art Studio liable for sales taxes levied upon the franchisee's business?
Extreme_Art_Studio Franchise · 2024 FDDAnswer from 2024 FDD Document
- 3.2.3 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, any bona fide customer refunds or customer tips.
Source: Item 22 — CONTRACTS (FDD page 49)
What This Means (2024 FDD)
According to Extreme Art Studio's 2024 Franchise Disclosure Document, franchisees are responsible for the collection and payment of sales taxes. The document specifies that 'Gross Sales' for royalty calculation purposes does not include sales, use, or service taxes that the franchisee collects from customers and remits to the appropriate taxing authority. This indicates that Extreme Art Studio does not assume liability for these taxes.
This arrangement is typical in franchising, where franchisees operate as independent business owners. Franchisees are generally responsible for complying with all applicable laws and regulations, including tax obligations, within their territory.
For a prospective Extreme Art Studio franchisee, this means they must understand and comply with all sales tax laws in their state and local jurisdiction. They will need to collect sales tax from customers, maintain accurate records, and remit the taxes to the appropriate government agencies on time. Failure to comply with these obligations can result in penalties and legal issues for the franchisee.