New York Franchisors Beware--New Reporting is required

New York A.B. 157 became effective April 7, 2009 and with it came a new level of reporting for franchisors with franchisees in New York.  Under the new provisions, any franchisor with at least one franchisee in New York who is required to file sales tax returns, MUST, file file an annual information report showing the sales made by each franchisee.  The purpose of these filings is obvious.  The state wants to use franchisor information to verify the sales tax information reported by franchsisees.  This will surely lead to an uptick of sales tax audits against restaurants and service franchisees that are taxable in New York.  It also adds a large amount of compliance on the franchisor.  The reports must include the income from the franchisee and the sales made by the franchisee and reported to the franchisor. 

Just to make sure that franchisors abide by this new rule, the state is imposing some penalties ranging from $500 to $10,000 in extreme cases. 

The first return is due September 30, 2009 which covers period March 1, 2009 to August 31, 2009. The next return is due March 20, 2010 which will cover the period September 1, 2009 to February 28, 2010.  From thereon, returns are due March 20 of each year. 

This type of legislation has huge implications for franchisees and for franchisors.  With this type of information, it will be easy for desk audits to be performed on every fast food restaurant in New York state and I can see the assessment notices flying out of the New York Department of Taxation and Finance. I would also expect more states to add this burden to franchisors. 

Comments?  let me know