The new year is upon us, and franchisors across the U.S. are focusing on updating their franchise disclosure documents and renewing their franchise registrations. In this busy time, it is easy to overlook other filing requirements for franchisors.
Since 2009, franchisors that have at least one franchisee that does business in New York state and is required to be registered as a sales tax vendor are required to file information returns with the New York State Department of Taxation and Finance. The reporting period is from March 1 to February 28 (or 29) of the subsequent year. The return is due on March 20.
The reporting requirement applies where the franchisor-franchisee relationship falls within the broad franchise definition under the New York franchise statute. The reports are generally intended to give the New York tax authorities a double check on state tax filings submitted by New York franchisees, and the contents of the franchisor report are in line with that purpose. For example, a franchisor must report the franchisees’ gross sales in New York both as reported by the franchisee and as audited by the franchisor (if there was an audit), information about the amount of royalty payments from each franchisee location in New York and the amount of sales made by the franchisor and its affiliates to each franchisee location. Franchisors are also required to inform franchisees of the reported information.
Penalties of up to $10,000 may be imposed for failure to comply with the reporting and information requirements.