7-Eleven Changes the Rules for Franchisees to Take Part in California Sales Tax Deferment Program
This post originally appeared on The Franchise Owners of Greater Los Angeles website.
At a time of unprecedented loss and fear among small businesses, the State of California has made a valuable offer to business owners: you can defer the sales tax you owe and pay it off over 12 months. The new relief effort gives all businesses with less than $5 million in annual taxable sales the ability to defer payment on up to $50,000 in sales tax liability without incurring any penalties or interest. It’s a great deal, unless you operate a 7-Eleven store.
The state is allowing businesses to enter payment plans where they can equally spread the cost of the tax liability over 12 months. If a business owner chooses to defer their Q1 tax liability, the first payment in their installment plan would be due by July 31, 2020. Except if you operate a 7-Eleven store.
Because 7-Eleven Inc. (SEI) controls the finances of every store, and requires franchisees to deposit all receipts from store operations daily in a bank account designated and owned by the corporation, franchisees must request SEI stop payment of sales taxes and, according to an internal SEI document, “temporarily return the amount of the Sales Tax Funds directly to [the franchisee].”
The problem is that SEI then requires that franchisees “agree to repay the amount of the Sales Tax Funds to 7-Eleven on or before July 15 2020 so that we can pay your sales taxes to the State of California on your behalf,” even though the state is allowing the taxes to be paid off in equal installments over the course of 12 months. SEI goes on to remind franchisees, “your failure to repay the amount of the Sales Tax Funds to us by July 15, 2020 could result in a material breach and potential termination of your Franchise Agreement.”
The coronavirus pandemic has hit 7-Eleven store owners hard; top line sales have fallen and bottom line profits have evaporated. Many franchisees were experiencing financial difficulties even before the outbreak. In 2019 a record number of 7-Eleven stores were put up for sale as operators reported zero equity in their investment. In California, many franchisees are struggling to stay above water and operate safely, but the corporation is changing the rules — essentially blocking franchisees from taking full advantage of the state’s relief plan for sales tax payments.