Running a franchise business comes with a different set of tax considerations than running a standalone company. This is because the franchise operating model introduces complexity earlier and more consistently as the business grows.
Franchise owners often deal with multiple locations, shared services, standardized systems, and activity across state lines. Each of those elements can affect how state and local taxes apply, sometimes in ways that are not immediately obvious.
This is multi-location owner tax guide designed specifically to help franchise owners understand how taxes tend to evolve as a franchise brand grows, where issues commonly arise, and what is worth reviewing with a CPA who understands franchise operations.
How Federal Tax Rules Influence Franchise Businesses
While most of the complexity discussed in this guide lives at the state and local level, federal tax rules still play an important role for franchise businesses.
Many states start with federal taxable income or federal definitions when calculating their own business taxes. Even when states modify those figures, federal decisions often set the baseline.
For franchise businesses, this commonly affects:
- How profits flow through to owners
- How equipment, build-outs, and technology investments are deducted
- How estimated payments are calculated during the year
The key point is that federal tax decisions can influence state-level outcomes, particularly for businesses operating in multiple jurisdictions.
Why Franchise Businesses Experience Tax Complexity Earlier
Franchise businesses often experience tax complexity earlier than other companies of similar size, due to how franchise systems are designed to scale.
Franchise brands frequently:
- Open locations in multiple states
- Centralize payroll, marketing, or administrative functions
- Share services or costs across locations
- Operate under standardized systems that span jurisdictions
Each of these factors can affect how state and local taxes apply. Unlike federal income tax, many state-level business taxes do not track profitability closely. Some are based on revenue, while others rely on formulas tied to payroll, property, or receipts in each state. As a franchise grows, these formulas matter more.
This is why franchise owners are sometimes surprised by tax notices or filing requirements. The business may be performing well, but tax exposure has expanded quietly as the franchise footprint has grown.
State-Specific Business Taxes And Franchise Operations
In addition to income and sales taxes, some states impose business-level taxes that apply regardless of profitability. These taxes often have unique calculation methods and filing requirements.
Texas is a well-known example. The Texas franchise tax is a state-imposed business tax that applies to many entities operating in the state, not just franchise businesses. Its calculation differs significantly from federal income tax and can affect franchise businesses even in lower-profit years.
Other states impose gross receipts taxes, margin-based taxes, or capital-based taxes under different names. While the mechanics vary, the takeaway for franchise businesses is consistent. Operating across multiple states means navigating multiple tax systems that do not align neatly with one another.
What to review with your CPA:
- Which state-specific business taxes apply to your franchise operations
- How those taxes are calculated and what data they rely on
- Whether current reporting reflects how the franchise actually operates
Nexus and Franchise Growth
Nexus refers to the level of connection that gives a state the authority to tax a business. For franchise businesses, nexus often develops naturally as the brand expands.
Common nexus triggers for franchise businesses include:
- Operating physical locations
- Employing staff in a state
- Holding inventory, equipment, or signage there
- Conducting administrative or support activities across state lines
As these activities are part of normal business growth, the tax implications are often identified only after the fact.
As states continue to enforce nexus rules more aggressively, it becomes increasingly important for franchise owners to understand where obligations exist and whether filings are current.
What to review with your CPA:
- An up-to-date nexus footprint for the franchise business
- Whether registrations and filings are complete in each applicable state
- Whether any prior exposure should be addressed proactively
What Franchise Businesses Should Review Regularly
Rather than focusing on filing mechanics, franchise owners are better served by periodic reviews that align tax treatment with how the franchise actually operates.
Areas worth revisiting include:
- Where the franchise operates and how activity is divided by state
- Whether state and local tax calculations reflect the current franchise structure
- Whether accounting systems properly track location-level activity
- Whether estimated payments align with the scale of the franchise
These reviews are not one-time exercises; they are part of managing a franchise business built to scale.
How SAS Supports Franchise Businesses
Franchise businesses require a different level of tax awareness than standalone companies, as managing state and local tax exposure effectively requires an understanding of both tax law and franchise operations.
SAS works extensively with franchise businesses and multi-location brands. We help franchise owners understand how growth decisions affect tax exposure and to address issues proactively rather than reactively.
That includes helping clients to understand state and local tax exposure across franchise locations, aligning accounting and reporting with franchise operations, and planning instead of reacting to notices and deadlines
If your franchise has expanded or entered new states and you are unsure whether your current tax approach still fits, now is a good time to review it.
Book a call with SAS to discuss your franchise’s tax landscape and get clarity on what to review next.
