The IFA is trying to buy more time for franchisors with franchisees in New York to prepare for the ramifications of a new law.
The New York state tax department’s recently enacted franchise reporting rule requires franchisors to submit gross revenue figures about franchisees operating in the state. Franchisors would also have to submit information such as franchisees’ federal tax identification numbers and sales to franchisees by suppliers that the franchisor recommended.
The first deadline for submitting the information is September 20, 2009 for reporting information for the period March 1 through Aug. 31, 2009.
On July 20, the IFA wrote a letter to New York State Department of Taxation and Finance acting commissioner Jamie Woodward requesting the deadline be delayed until December 31, 2009. “We are working with franchisors to help them comply with this law,” wrote IFA CEO Matt Shay. “Since this requirement is the first of its kind in the nation, there is significant uncertainty among franchisors about how to comply with this new obligation.”
Shay said the requirements create logistical challenges, privacy issues and legal concerns for franchisors. Among the specific problems he mentioned in his letter:
The value of goods and services sold may vary across states. For instance, the gross sales reported to a franchisor may differ from the amount reported for sales tax purposes if certain goods and service are not taxable in New York state.
• Some franchisors use criteria other than gross revenue to measure franchisee performance. For instance, lodging industry franchises might be measured by room-nights or restaurant franchises might be measured by cents-per-gallon of products sold.
• Since not all franchisors negotiate with suppliers on behalf of franchisees, or track supplier information on a store-by-store basis, it may be difficult or impossible to get data about sales by suppliers. And some franchisees might think gathering this information violates the privacy of their supplier relationships.
Above and beyond the logistical headaches the new law would cause, one tax attorney cited in Blue Mau Mau’s blog warns that since numbers almost certainly will not add up, some type of audit will be required—meaning more costs for franchisees.
I understand that New York is seeking additional sources of revenue in today’s tough times. But is putting the squeeze on small businesses really the way to go about it?
In his letter, Shay urged the state tax department to reconsider the new franchise rule: “We urge New York to carefully consider the broad ramifications of this unprecedented law.” I second that emotion. Here’s hoping the state of New York listens and rethinks this onerous requirement—or at least puts it off for a while longer.