The A.R.T. of Franchising: Advice - Reminders - Tips


Dear Franchisor,

Welcome to the Jackson Walker’s ART of Franchising newsletter. As always, our intention is to provide you with timely and easy-to-read franchise advice, reminders and tips, so that, as industry leaders, your knowledge of franchising will be continually expanding.

Today’s Advice

It is important for all franchisors who are franchising in multiple states to be aware that they may be subject to state taxes on royalty payments earned in the states where their franchisees are located. The case law has very consistently held that despite a franchisor’s lack of physical presence in a particular state, such state may impose an income tax on revenue earned by an out-of-state franchisor through its franchisees in-state operations. Thus, a Texas-based franchisor must pay Iowa state income tax on royalties earned from Iowa-based franchisees. It must also be noted that such out-of-state tax collections are growing rapidly as states are more aggressively looking for sources of revenue. Ten years ago the odds of a franchisor getting targeted for failing to pay a state’s income tax on royalties collected from in-state franchisees was negligible. Today, the odds of getting targeted are much higher.

Please see full article below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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