• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Advertise
  • Submissions
  • About Us
  • Contact Us
  • Apr 20, 2021
  • Startup
    • Creating a Plan
    • Funding a Startup
    • Franchise Center
    • Getting Your Office Ready
    • Making Your Business Official
    • Marketing Your New Business
    • Personal Readiness
  • Run & Grow
    • Customer Service
    • Human Resources
    • Innovation
    • Legal
    • Operations
    • Risk Management
  • Leadership
    • Best Practices
    • Communication
    • Green Initiatives
    • Open Culture
    • Strategic Planning
    • People Skills
  • Sales & Marketing
    • Advertising and Lead Generation
    • Marketing Innovations
    • Marketing Plans
    • Online Marketing
    • Relationships
    • Sales Activities
  • Finance
    • Budgeting and Personal Finance
    • Payments and Collections
    • Tax and Accounting
    • Pricing Strategy
    • Working with Investors
    • Working with Lenders
  • Tech
    • eCommerce
    • Hardware
    • Software
    • Security
    • Tech Reviews
    • Telecom
  • Shop

SmallBizClub

Helping You Succeed

Tax Bandits banner
Home / Startup / Franchise Center / Considering a Franchise? Consider Sales Tax!
Considering a Franchise? Consider Sales Tax!

Considering a Franchise? Consider Sales Tax!

1102 Views

Jul 14, 2014 By Bill Bradley

One of the advantages some franchise business opportunities tout is “No sales tax!” This typically shows up right along with home-based, no or few employees, no inventory, and low overhead as an advantage for service-oriented businesses like gyms, salons, and business-to-business professional services.

 
This is based on the traditional distinction between goods and services. Goods are physical objects that are given to a customer by a business in exchange for payment. Services are performed without giving physical objects to customers. Simple, right?
 
Not any more. There are two big reasons for this. First, the distinction between goods and services is less clear. If you buy a DVD or a CD in a store, you pay sales tax on your purchase and put that physical object in a bag. But if you stream the same content on your computer, you are arguably getting the same thing as if you bought the object, but no tangible objects are involved. Some tax jurisdictions want to see these two situations treated in the same way.
 
Add the pictures you take on your cell phone instead of buying film and paying for prints of the photos, the electronic gift cards you send instead of buying physical presents, and the newspapers, books, and magazines you used to buy before you started reading them on your iPad or Kindle. That’s a lot of revenue moving out of the physical space.
 
The second big reason is that we’re moving from a goods-based economy to a service-based economy. If you don’t send an electronic gift card for downloading music, you might instead give a mani-pedi, a boot camp membership, or a subscription to a maid service. People spend more of their money on services, and more businesses provide services rather than making or selling goods.
 
The result is that states and cities no longer get the kind of revenue from sales tax that they used to. They can’t just cut back on expenses, and often they can’t raise rates without getting approval from taxpayers, who are notoriously unsupportive of sales tax increases. The solution? Extend taxes to services as well as to goods.
 
Many states are extending sales taxes to services. They’re not usually just doing this as a blanket change, though. That’s what makes it difficult to determine whether you’ll have to deal with sales tax or not.
 
For example, if you have a gym in Florida, you’ll have to collect sales tax—but the gym down the street which is owned by a hospital won’t collect sales tax, even though they’re open to the public and offer the same services you do. In Texas and California, you’ll collect sales tax, but in Missouri you won’t. Washington, D.C. is still debating whether or not to collect sales tax on gym memberships, but they’ve added sales tax for a wide range of other services already.
 
As states and cities work to increase falling sales revenues, they’ll be more likely to add in services, so you should probably assume that any franchise business, even if it currently doesn’t pay sales tax in your town, might do so in the future. Bottom line: don’t let “No sales tax!” sway you when you decide which franchise to choose.
 
This article was originally published by America’s Best Franchises

Filed Under: Franchise Center Tagged With: Bill Bradley, Franchise Business, Taxes

Bill Bradley

Bill Bradley

Bill Bradley is founding member and CEO of America’s Best Franchises, LLC.  Bill founded three financial services firms, Ocean Shores Ventures, Denali International and William Bradley Enterprises. In addition, to launching America’s Best Franchises in 2005, Bill orchestrated approximately 20 private equity transactions in excess of $31 million, and launched five specific purpose private equity partnerships.

Related Posts

  • 5-tax-issues-that-cause-irs-trouble-for-1099-workersEmployers: IRS Changes Payroll Tax Form 941 for Q1 2021
  • Franchising IS Possible for Recent College Grads
  • 5 Steps to a Successful R&D Claim

Primary Sidebar

Random

5 Marketing Lessons from Justin Timberlake

Oct 24, 2014 By Danny Iny

Crypto Currency: The Newest Investment Tool for Your Business

Jun 18, 2018 By Alice Johnson

Protect Your Cash, Part 2

May 14, 2013 By Ruth King

Financing Your Startup: 5 Things to Keep in Mind

Sep 18, 2014 By SmallBizClub Contributor

Are You Blockbuster or Netflix?

Jul 22, 2015 By Redshift

Footer

About Us

Small Biz Club is the premier destination for small business owners and entrepreneurs. To succeed in business, you have to constantly learn about new things, evaluate what you’re doing, and look for ways to improve—that’s what we’re here to help you do.

  • Facebook
  • LinkedIn
  • RSS
  • Twitter

Copyright © 2021 by Tarkenton Institute, Inc. All Rights Reserved | Terms | Privacy