IFA survey: Failure to extend tax rates could hurt franchises

As policymakers in Washington, D.C., continue to lock horns on the edge of what has come to be called the “fiscal cliff,” a new survey says franchise business could suffer if the current tax rates that are set to expire at the end of the year are not extended.

According to the International Franchise Association’s annual Franchise Business Leader Survey, 79 percent of franchisees and 73 percent of franchisors say the government’s failure to extend the existing tax rates will negatively impact hiring and growth plans for the future.

The IFA has urged lawmakers to craft a comprehensive tax reform bill that would decrease both corporate and individual tax rates by a set date. The result would fuel greater long-term growth for the franchise industry, the association said.

“What we need in this country is jobs, and the majority of that growth can come from the small business and franchising community if we avoid diving over the fiscal cliff,” said Steve Caldeira, president and chief executive of the IFA. “Congress and the administration must find a way to decrease spending and raise revenue without raising tax rates on job creators.

“While the president has been on a charm offensive with corporate CEOs, the interests of franchisees and other small businesses seem to be taking a back seat, despite his campaign rhetoric on the importance of small business growth to the economic recovery,” Caldeira said. “What we need is for the small business community, which creates 65 percent of all net new jobs, to have a seat at the table in this debate.”

Uncertainty lies at the heart of the problem, said Joseph West, president of Brooklyn Water Bagels Franchise Company in Boca Raton, Fla. “Our main concern is the inability to predict the future due to the inability of the political process in Washington, D.C., to develop rational taxing and business policies,” West said.

According to the IFA study, 53 franchisees, or 79.1 percent, replied “yes” to the question, “Income tax rates are set to increase on Dec. 31. Will this impact your ability to grow and expand your business?” Only 14, or 20.9 percent, responded “no.”

In answer to the same question, 80 franchisors, or 73.4 percent, said “yes,” while 29, or 26.6 percent, answered, “no.”

Sixty-one franchisees, or 91.0 percent of the respondents, said they were supportive of a simpler tax code that eliminates deductions in exchange for a lower corporate and individual tax rate. Only six franchisees, or 9.0 percent, responded in the negative.

By comparison, 94 franchisors, or 87.9 percent, answered “yes” to the same question, while 13, or 12.1 percent, replied “no.”

Contact Paul Frumkin at [email protected].
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