New Tax Affecting Franchisors Considered in New York
The state of New York has
launched what may become an effort to tax franchisors with franchisees
operating in the Empire
State, no matter where
the franchisors themselves operate.
The state's opening gambit is a provision in its annual
budget legislation requiring that out-of-state franchisors inform the New York Department
of Taxation and Finance of the identities and addresses of franchisees located
in New York,
along with detailed data on:
- Gross
sales for each New York
franchise location as reported to the franchisor, and as audited by the
franchisor;
- Gross New York sales
taxes collected by each franchisee;
- Royalties
paid to franchisors by their New
York franchisees, along with details as to how
franchisors compute royalties;
- Gross
sales to New York
franchisees by franchisors or their affiliates, or by any suppliers
designated by franchisors.
Franchisors must submit information returns before Sept. 20
covering New York
operations through Aug. 31, and they should obtain expert legal advice before
complying.
For one thing, the state's gambit probably isn't innocent. New York says it just wants
to know whether franchisees comply with tax laws. But the legislation raises complex
issues under the Constitution's commerce clause and the due-process clause of
the 14th Amendment, and no one knows where the courts might take these
issues.
For another, it is unclear whether the legislation applies
to all franchisors with franchisees in the Empire State.
Technically, the question is whether franchisors have sufficient "nexus" in New York for tax
purposes - in essence, a sufficient business footprint in the state to make
them subject to the state's tax laws. This is a complex legal issue requiring
expert analysis, particularly for franchisors with master-franchisor or area-representative
arrangements in place in New York.
What is clear is that the New York legislation constitutes a threat to
franchisors everywhere. That state's legislators - hard-pressed to balance
their budgets and, like lawmakers in many other states, on the prowl for new
revenues - might find it hard to resist the temptation to tax out-of-state franchisors
once they learn what revenues they enjoy from franchisees in that state. Short
of that, although New York
tax law forbids the sharing of tax-return information, the state could pass the
data it collects on franchisor revenues to such other interested parties as the
franchisors' states of domicile.
|
|
How to Choose a Franchise
Franchising abounds with opportunities. Which one is best
for you?
To answer that question is to take a journey inward, because
what path you take into the world of franchising depends in great measure on
who you are and what you want to accomplish.
Here are five things to think about as you take that journey:
You
will greatly enhance your chances of success selling products or services
you understand. Don't jump into something completely new and different; if
you sell cars for a living, don't buy a house-cleaning franchise.
-
Consider
your strengths. Ditto your weaknesses. If you're happiest when following
orders, resist the idea that you can become a leader overnight, just by
buying a franchise. On the other hand, if you insist on going your own way
at every turn, how long will it take before you chafe at the
follow-these-steps-if-you-want-to-succeed nature of the franchising
industry?
-
Follow
your passion - and step carefully. You need to be committed enough to your
enterprise to make success your only option, but the enterprise itself
must have the potential to succeed. You may love your collection of
antique whale-oil lamps, but going into the whaling business won't get you
far.
-
It's
your money. Invest enough of it to keep you keenly aware of what's at
stake, but don't throw everything you have at the venture. Be realistic
about the costs of becoming a franchisee and buy a franchise that matches
your resources.
-
Keep
your antennas up while you do due diligence. Get good legal counsel, because you must understand
the ties between you and your franchisor - legal, financial, and
otherwise. In addition, learn everything you can learn about your
franchisor's record, and talk to every other franchisee you can track down.
Above all, at every step of the way, ask yourself whether the people you meet
- your franchisor, the people in the home office who will be your primary
contacts, and other franchisees - conduct themselves as you would. This
goes beyond mere compatibility; if you are to succeed as a franchisee, you
must buy into the franchisor's vision, but the character of the people you
will work with must match up with your own.
|
Barry Kurtz Named One of State's First Specialists in Franchise and Distribution Law
Barry Kurtz
was recently named a Certified Specialist, Franchise & Distribution Law, by
The State Bar of California Board of Specialization.
This certification is awarded to attorneys whose knowledge and experience in
Franchise & Distribution Law is of the highest level. Applicants must meet
criteria that may include testing, continuing education, and favorable
evaluations by other attorneys and judges familiar with their work. While some
areas of specialization have hundreds or even more than a 1000 certified
specialists, to date, fewer than 25 attorneys have been honored with this
prestigious certification in Franchise & Distribution Law.
"I am pleased and honored to have received this certification," said Barry
Kurtz. "Franchise Law has been my area of practice for more than 29 years
and now I can officially call it my specialty."
The firm's team of franchise lawyers is led by Mr. Kurtz and focuses on
domestic and international franchising, distribution, and other related
practice areas, including intellectual property licensing, business law,
commercial real estate leasing, and the purchase and sale of independent and
chain businesses.
|
|
|
This communication published by Barry Kurtz, APC is intended as general information and may not be relied upon as
legal advice, which can only be given by a lawyer based upon all the relevant
facts and circumstances of a particular situation.
Copyright © Barry Kurtz, A Professional Corporation 2009
All Rights
Reserved.
|
|
|
|
Barry Kurtz is a prolific writer on the subject of franchise law. From due diligence to franchise
appraisal, his articles are a valuable resource to any franchisee and franchisor.
Visit our website for more articles.
|
|
|
