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Complex tax code hurting franchises, IFA says

The International Franchise Association is encouraging lawmakers to pursue comprehensive tax reform as a way to support the franchise industry.

April 16, 2015

The International Franchise Association is encouraging lawmakers to pursue comprehensive tax reform as a way to support the franchise industry, the company said in an announcement.

"The current tax code is not working to appropriately grow the economy for small business owners," said Robert Cresanti, IFA executive vice president of Government Relations & Public Policy, in a statement. "Too often, these business owners get lost in the complex web of the tax code. Unlike, large corporations, nearly 80 percent of small business franchise owners file their business income on their individual tax returns thereby paying the higher individual rates. This is a major reason any serious tax reform effort must be comprehensive, not corporate-only. The right kind of comprehensive reform, one that lowers rates and reduces complexities in the code, would help franchise businesses grow even faster and create more jobs."

The latest "Overview of the Federal Tax System" produced by the U.S. Congress Joint Committee on Taxation, reported that 7,594,013 business tax returns are filed as S Corp or Partnerships annually, while only 1,635,369 are filed as C Corps, causing the vast majority of businesses to file taxes using individual rates, not corporate rates, according to the IFA press release. The organization stated that if tax reform only addresses C Corp rates, small businesses such as franchises will be at a "severe competitive disadvantage."

A Franchise Business Economic Outlook report prepared by IHS Economics indicates that growth in the franchise sector will increase over the previous year, with the number of franchise establishments in 2015 expected to reach 781,931 or a 1.6 percent increase. Franchise employment is expected to reach 8,820,000 jobs or a 2.9 percent increase in 2015.

Cresanti predicted that industry growth would further increase "if the tax code were less complex and included lower rates for small businesses."