State & Local Tax Alert
Breaking state and local tax developments from Grant Thornton LLP
New York Issues Additional Guidance Relating to the New Release date
Requirement for Franchisor Information Returns September 1, 2009
A provision of New York State’s budget bill created new reporting requirements for States
several types of businesses, including franchisors. Under this provision, franchisors must New York
provide the state with certain annual transactional information pertaining to franchisees
operating in New York.1 On August 18, 2009, the New York State Department of
Taxation and Finance issued additional guidance clarifying some of the reporting Contact details
requirements.2 Although these new statutory provisions, along with the Department’s Giles Sutton
guidance, address reporting requirements for several types of businesses, this Alert T 704.632.6885
addresses the provision impacting franchisors.3 E firstname.lastname@example.org
Jamie C. Yesnowitz
Time Extension Washington, DC
Pursuant to the Department’s guidance clarifying some of the reporting requirements E email@example.com
applicable to franchisors, if a franchisor is unable to obtain or compile the required
information by the due date of any information return, the franchisor may apply for www.GrantThornton.com/SALT
an automatic 90-day extension of time to file the return.4
The application must be made electronically on or before the due date of the return.
The application(s) will be made available on the Department’s Web site in the near future.
Additional information on how to apply for the extension also will be made available on
the Department’s Web site.5
1 Ch. 57 (A.B. 157), Laws 2009, effective April 7, 2009.
2 TSB-M-09(8.1)S, New York State Department of Taxation and Finance, August 18, 2009, TSB-
M-09(9.1)S, New York State Department of Taxation and Finance, August 18, 2009, and TSB-M-
09(10.1)S, New York State Department of Taxation and Finance, August 18, 2009.
3 For reporting requirements for certain insurers and alcoholic beverage wholesalers, see N.Y. TAX
LAW § 1136(i)(1)(a) and (c). The Department’s clarifications to the reporting requirements
applicable to insurers and alcoholic beverage wholesalers are similar in scope to the clarifications
relevant to franchisors. See TSB-M-09(8.1)S and TSB-M-09(10.1)S. Also, see the following GT
SALT Alerts: “New York Enacts State Reporting Requirements for Franchisors,” July 7, 2009; and
“New York Enacts State Reporting Requirements for Alcoholic Beverage Wholesalers,” July 27,
2009, for discussions on the statutory enactment of the reporting requirements.
5 The web site link is www.nystax.gov.
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Waiver of Penalties for Incorrect Data Provided from Franchisees
In general, the franchisor must obtain information from the franchisee, such as the
franchisee’s legal name. If it is subsequently determined that the information obtained
from the franchisee is incorrect, the Department will waive the penalty for failure to
provide information that is true and correct if the franchisor did not know or have
reason to know that the information was not true and correct.6
Modification of the Requirement to Submit Information Relating to Gross
Sales and Sales Made by Suppliers
The Department originally required franchisors to report “gross sales in New York State
for each franchise location as reported to the franchisor for the period covered by the
return.”7 The Department has clarified this position so that gross sales information
need only be reported to the extent that the franchisee has reported that
information to the franchisor.8
The Department also originally required reporting of the “amount of royalty payments, if
any, for each franchise location, made to the franchisor,” and “the royalty percentage of
gross sales reported.”9 In those cases where the royalty payments are not based on
gross sales of the franchisee, the Department has decided that it will not require
the reporting of the amount of the royalty payments.10 For example, in cases where
the franchise fee is a fixed amount per year, a set dollar amount per room, or is included in
the price of supplies sold to the franchisee, the franchisor will not be required to submit
royalty payment information for those franchisees. Note, however, as indicated in the
Department’s original guidance, the franchisor, in these cases, must still provide
details as to how the franchisee fee, royalties or other fees are determined.
Certain Information No Longer Required
In addition, franchisors are no longer required to provide the following
• Gross sales in New York State for each franchise location as audited by the
franchisor if different than reported by the franchisee; and
• The amount of any sales made to each franchise location by any supplier
designated by the franchisor.11
The changes to the prescribed reporting requirements will apply to the first
information return period due September 21, 2009, and any subsequent reporting
7 TSB-M-09(9)S, New York State Department of Taxation and Finance, July 7, 2009.
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Future Updates and Additional Information
The Department has notified taxpayers that any future updates or additional information
regarding these information returns will be made available on the Department’s Web
While multistate franchisors may be significantly impacted by the new disclosure
requirements, this additional guidance seems to recognize the difficulties that franchisors
will face in getting, in a timely fashion, the required information from their franchisees.
The automatic 90-day extension will be particularly helpful for franchisors which have
numerous franchisees, or do not closely oversee their franchisees. Even so, franchisors
should be aware that the Department will utilize the mandated disclosures in an effort to
identify revenue streams that arguably may fall within New York’s tax base and be
classified as taxable in New York. It remains to be seen whether other states will likewise
impose disclosure requirements on franchisors in this manner.
The information contained herein is general in nature and based on authorities that are subject to change.
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