Are sales taxes included in the Gross Revenues calculation for a Stretch Zone franchise?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
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- "Gross Revenues" means the entire amount of all of the revenues from the ownership or operation of the Franchise Business, including the proceeds of any business interruption insurance, whether the revenues are evidenced by cash, credit, checks, or gift certificates (unless exempted by us), and the fair market value of any services, property, or other means of exchange, except the amount of any sales taxes that are collected and paid to the taxing authority (based on the cash method of accounting). We allow the deduction of cash refunded, credit given to customers, and receivables uncollectible from customers in computing Gross Revenues to the extent that the cash, credit or receivables were previously included in Gross Revenues on which Royalty Fees and Advertising Contributions were paid. Gross Revenues are considered received at the time the goods, products, merchandise or services from which Gross Revenues are derived are delivered or rendered, or at the time that the relevant sale takes place, whichever occurs first.
Source: Item 19 — ITEM -19 FINANCIAL PERFORMANCE REPRESENTATIONS (FDD pages 73–76)
What This Means (2025 FDD)
According to Stretch Zone's 2025 Franchise Disclosure Document, the calculation of Gross Revenues specifically excludes sales taxes. Gross Revenues for a Stretch Zone franchise are defined as the total income from operating the franchise, including proceeds from business interruption insurance and the fair market value of services or property received. This revenue can be in the form of cash, credit, checks, or gift certificates.
However, the definition explicitly excludes "the amount of any sales taxes that are collected and paid to the taxing authority." This means that franchisees do not have to include sales tax when calculating their gross revenues, which is a standard practice in franchising to avoid franchisees paying royalties on taxes they remit to the government. Stretch Zone also allows franchisees to deduct cash refunds, credits to customers, and uncollectible receivables from gross revenues, provided these were previously included in gross revenues and royalties and advertising fees were paid on them.
Gross Revenues are considered received when the goods or services are delivered or rendered, or when the sale takes place, whichever comes first. This definition is important for franchisees as it clarifies what constitutes revenue for royalty calculation purposes. Prospective franchisees should understand this definition thoroughly, as it directly impacts the royalties and advertising contributions they will owe to Stretch Zone.