Are sales taxes included in the Gross Sales calculation for an Extreme Art Studio franchise?

According to the 2024 Extreme Art Studio Franchise Disclosure Document, Gross Sales do not include sales taxes. The document specifies that Gross Sales means all revenue received from operating the franchised business. This includes all amounts received directly or indirectly, whether in cash, check, credit/debit card, or other forms of credit transactions, as well as proceeds from business interruption insurance. Gross Sales also encompass monies received from customers for products and services, gift card redemptions, proceeds from business loss or interruption insurance, and any other revenue derived.

However, the 2024 FDD explicitly states that Gross Sales does not include federal, state, or municipal sales, use, or service taxes collected from customers and remitted to the appropriate taxing authority. Additionally, bona fide customer refunds and customer tips are also excluded from the Gross Sales calculation. This definition is important because the royalty fee that Extreme Art Studio franchisees pay is based on a percentage of Gross Sales.

For an Extreme Art Studio franchisee, this means that the 8% royalty fee is calculated on revenue after deducting sales taxes, customer refunds, and tips. This exclusion reduces the royalty payment compared to calculating it on total revenue before these deductions. Franchisees should maintain accurate records of sales taxes collected and remitted, as well as customer refunds and tips, to ensure accurate royalty reporting and avoid overpayment of royalties to Extreme Art Studio.