Are sales taxes included in the Gross Revenue calculation for a Fitstop franchise?
Fitstop Franchise · 2024 FDDAnswer from 2024 FDD Document
- 13.2 Definition of "Gross Revenue". For the purposes of this Agreement, the term "Gross Revenue" shall mean the total amount of consideration, whether cash, credit, or payment in kind, received by you for all goods sold and services (including all membership fees and other revenue generated from the sale of Approved Services and Approved Products), including barter (exchange of tuition for services or products), and excluding refunds, uncollectible debts, taxes collected and paid to a tax authority, and tuition credits for staff children.
There shall be deducted from Gross Revenue the price of goods returned by customers for exchange, provided that such returned goods shall have been previously included in Gross Revenue, and provided that the sales price of goods delivered to the customer in exchange shall be included in Gross Revenue.
Gross Revenue shall not include the amount of any sales tax imposed by any federal, state, municipal, or other governmental authority directly on sales and collected from customers, provided that the amount thereof is added to the selling price or absorbed therein and actually paid by you to such governmental authority.
Source: Item 23 — RECEIPTS (FDD pages 50–135)
What This Means (2024 FDD)
According to Fitstop's 2024 Franchise Disclosure Document, sales taxes are excluded from the calculation of Gross Revenue. Gross Revenue for a Fitstop franchise is defined as the total income, whether in cash, credit, or other forms of payment, that a franchisee receives from selling goods and services. This includes all membership fees and revenue from approved services and products, as well as barter transactions.
However, the definition explicitly excludes refunds, uncollectible debts, taxes collected and paid to a tax authority, and tuition credits for staff children. The FDD clarifies that sales taxes imposed by any governmental authority on sales and collected from customers are not included in Gross Revenue, provided that the tax amount is either added to the selling price or absorbed within it, and is actually paid to the relevant governmental authority.
This exclusion of sales taxes from Gross Revenue is a benefit to Fitstop franchisees because royalty fees and brand development fund contributions are calculated as a percentage of Gross Revenue. By excluding sales taxes from the base calculation, the franchisee pays royalties and fund contributions on a smaller, net revenue figure, reducing these expenses. This is a fairly standard practice in franchising, as it ensures franchisees are not paying fees on money that is simply being passed through to tax authorities.