Anyone a Franchisee?

[denverpilot]

The "lodging" or "occupancy" tax, whatever they call it down there, does NOT come out of your pocket. It is tacked onto whatever you charge for the service.

If it makes you feel any better, I'm probably going to start paying myself in July, since the sum total of my revenue for the last 6+ months has gone to pay various taxes (that I don't get to pass along.)

I'm out.

Hang on a sec... what do you mean you "don't get to" pass along? Either you're turning a profit after collecting enough money from customers to pay those taxes or you're not.

If you want to give customers an itemized bill that includes showing how much of it is going to taxes, you can. Nothing is stopping you from doing so.

The retail biz in theory, doesn't make a profit until November, thus... Black Friday. Supposedly anyway. So being able to pay yourself starting in July isn't all that bad.

Plus, it's about comparable with someone in a job. Most of us are just paying income taxes until about July also. Opinions differ on what month it is, but we're all just indentured servants to the government for just under half a year these days. Then we go buy stuff with our profits and they want a percentage of the sale, too.

By the time it's all said and done, most folk lose 50% of their income to taxes. And then the politicians spend orders of magnitude more than they collect. Doesn't look like a very good long term plan for anything other than bankruptcy, to me.

But your argument that Jay can pass his along and you can't/aren't, is ludicrous. If you didn't wouldn't make a profit. And if you don't make a profit, you're going out of business eventually. Whatever the government charges you in taxes will certainly be reflected in the price your customers pay.

The total price of both of your products reflects the taxes you both are required to pay. Whether you want to break it out on the bill, isn't relevant.

 

[paflyer]

Hang on a sec... what do you mean you "don't get to" pass along? Either you're turning a profit after collecting enough money from customers to pay those taxes or you're not.

If you want to give customers an itemized bill that includes showing how much of it is going to taxes, you can. Nothing is stopping you from doing so.

The retail biz in theory, doesn't make a profit until November, thus... Black Friday. Supposedly anyway. So being able to pay yourself starting in July isn't all that bad.

Plus, it's about comparable with someone in a job. Most of us are just paying income taxes until about July also. Opinions differ on what month it is, but we're all just indentured servants to the government for just under half a year these days. Then we go buy stuff with our profits and they want a percentage of the sale, too.

By the time it's all said and done, most folk lose 50% of their income to taxes. And then the politicians spend orders of magnitude more than they collect. Doesn't look like a very good long term plan for anything other than bankruptcy, to me.

But your argument that Jay can pass his along and you can't/aren't, is ludicrous. If you didn't wouldn't make a profit. And if you don't make a profit, you're going out of business eventually. Whatever the government charges you in taxes will certainly be reflected in the price your customers pay.

The total price of both of your products reflects the taxes you both are required to pay. Whether you want to break it out on the bill, isn't relevant.

Jay is passing along money that was never "his" and is not related to his P&L. Income tax on profit isn't the same as collecting sales taxes on the service/goods that are delivered.

 

[Sam D]

Can we agree that if the hotel tax on Amelia Island was 200% of rack rates, business would decline appreciably? Would it decline if it was 100% of rack rates? 50%? Even at a relatively low level, it will have some impact on the size of the market Jay is addressing. And that is a component of pricing that Jay cannot control. While the money is never his, it could be if the TOT was never charged and he was able to raise his rates. At that point, it's a matter of semantics as to whether you say it's a tax he pays or not. Technically no but economically yes.

 

[paflyer]

Can we agree that if the hotel tax on Amelia Island was 200% of rack rates, business would decline appreciably? Would it decline if it was 100% of rack rates? 50%? Even at a relatively low level, it will have some impact on the size of the market Jay is addressing. And that is a component of pricing that Jay cannot control. While the money is never his, it could be if the TOT was never charged and he was able to raise his rates. At that point, it's a matter of semantics as to whether you say it's a tax he pays or not. Technically no but economically yes.

I wish all the money I earn is mine to keep, too.

 

[Mason]

Bottom line: We could easily provide health insurance and a living wage to our employees were it not for that tax. If that doesn't illustrate how "real" it is to y'all, well, I give up.

Nope.

If there were no tax, you would not be able to charge the equivalent amount to your customers, because your competitors would not, forcing you to do the same.

 

[Shawn]

There are clearly a lot of people that do not actually own and operate small businesses on a day to day basis making arguments here.

 

[denverpilot]

Jay is passing along money that was never "his" and is not related to his P&L. Income tax on profit isn't the same as collecting sales taxes on the service/goods that are delivered.

Semantics. The price to both of your customers is higher by the price of the tax either way or you both go out of business.

Doesn't matter how you frame it. Total price includes taxes.

Both his and your customers would love the new price if neither of you had to pay taxes on your businesses.

One business wears the taxes on its sleeve and on the receipt and the other doesn't. No difference to the buyer.

You didn't answer why you can't expose your taxes to your customers. Why not?

 

[Jay Honeck]

Jay- I just looked at your web site. Rooms are $109.50 through $139.50. I'm pretty sure that doesn't include the taxes (sales, occupancy, beach, convenience fee, whatever apply to that locality). I don't recall seeing any room rates listed in any hotel mentioning the taxes; the one hotel that does will show a higher price than their competitors and lose business. One can argue that is unfair to the customer- the room costs more than $109.50, maybe a lot more, but that is the way the business works. The only money that really "belongs" to you for expenses is the $109.50, employees, electric, and air conditioning repair. The taxes that aren't listed on the web site, but are included in my bill, belong to the government. If you didn't have those taxes, would your web page show a different price for those rooms?

If you think that's bad, you should see what our McChain competitors have started to do. They now list their price as (for example) "$139.95 per night, plus tax" -- but in the small print it says "price does not include parking or resort fees".

Those fees are over $80/day! What a scam. lol

But Expedia is apparently allowing it, and it makes the McChains look more competitive.

 

[AggieMike88]

or resort fees

What would a resort be be all about?

 

[denverpilot]

What would a resort be be all about?

Profit.

 

[Jay Honeck]

Whenever the topic of who is actually paying sales tax comes up, I like to tell the following tale about my favorite bar in Port Aransas, the Wild Horse Saloon.

This bar was open for over a decade, and made the best damned cheeseburger on the planet. It was "our" bar, and in the off season it became a Packer Bar for Winter Texans. (Being from Wisconsin, we are huge Packer fans.)

That said, business had been down (and expenses had been up) due to many factors.

A few weeks ago the owner, a guy we've done promotions with over the years, was looking even more haggard than usual. He quietly told me that he was unable to process credit cards because the State had slapped a lien on his bank account. Everything was cash only. He looked like he had been crying.

Four days later, in a highly publicized raid that involved TABC, local police, Texas Rangers, and the constable, they ran everyone out (on a Friday night) and padlocked the front door. It seems that John, the owner, had been unable to pay his sales taxes for the last few months.

So, now, who pays those taxes again?

Was he really just an unpaid tax collector who absconded with the money? Or was he, in fact, being taxed on his gross income?

From where I'm sitting, there is absolutely no difference. This semantical game is just a brilliantly diabolical scheme by the state, done in order to justify usuriously high business taxes.

"No, Jay, you're not actually PAYING that tax! Not at all! You're merely COLLECTING it for us! Yeah, that's what you're doing!"

Please. You have to pretty thick to believe that line.

 

[Everskyward]

Was he really just an unpaid tax collector who absconded with the money?

Yes.

The difference between sales tax and corporate income tax is that the merchant is collecting the sales tax for the taxing agency, for example, the state. In the case where there are two merchants selling the same thing, they both need to collect sales tax at the same rate. However, if merchant A makes a profit and merchant B has a loss, merchant A will end up paying more corporate income tax than merchant B. As far as who is actually doing the paying, the customer or the merchant, I don't think it makes a bit of difference how you think about it.

 

[Mason]

Four days later, in a highly publicized raid that involved TABC, local police, Texas Rangers, and the constable, they ran everyone out (on a Friday night) and padlocked the front door. It seems that John, the owner, had been unable to pay his sales taxes for the last few months.

So he embezzled money that he had been collecting and holding on behalf of the State.

 

[paflyer]

Semantics. The price to both of your customers is higher by the price of the tax either way or you both go out of business.

Doesn't matter how you frame it. Total price includes taxes.

Both his and your customers would love the new price if neither of you had to pay taxes on your businesses.

One business wears the taxes on its sleeve and on the receipt and the other doesn't. No difference to the buyer.

You didn't answer why you can't expose your taxes to your customers. Why not?

Just because there is a tax adder to the bottom line doesn't mean that it's lost revenue to the seller.

 

[paflyer]

A few weeks ago the owner, a guy we've done promotions with over the years, was looking even more haggard than usual. He quietly told me that he was unable to process credit cards because the State had slapped a lien on his bank account. Everything was cash only. He looked like he had been crying.

Four days later, in a highly publicized raid that involved TABC, local police, Texas Rangers, and the constable, they ran everyone out (on a Friday night) and padlocked the front door. It seems that John, the owner, had been unable to pay his sales taxes for the last few months.

That's because Johnny was putting money not rightfully his into his own pocket!!!!!

It's not semantics. You DO NOT pay the sales tax. It is NOT tax on your income. You ARE responsible for saving the aggregate collected tax so that when the bill comes due you have the money to pay it.

 

[paflyer]

So he embezzled money that he had been collecting and holding on behalf of the State.

Precisely.

 

[paflyer]

There are clearly a lot of people that do not actually own and operate small businesses on a day to day basis making arguments here.

Right so stop commenting!

 

[denverpilot]

Yes.

The difference between sales tax and corporate income tax is that the merchant is collecting the sales tax for the taxing agency, for example, the state. In the case where there are two merchants selling the same thing, they both need to collect sales tax at the same rate. However, if merchant A makes a profit and merchant B has a loss, merchant A will end up paying more corporate income tax than merchant B. As far as who is actually doing the paying, the customer or the merchant, I don't think it makes a bit of difference how you think about it.

Total price is total price. Whether you call it a "collected" tax or a "levied on profits" one, the customer is paying for both.

Unless the business operator is stupid or planning on bankruptcy.

Doesn't matter what you call it. It's a tax that customers ultimately pay. Both businesses collect it. One business thinks they're not allowed to show it to their customers for whatever false reasoning. No reason they can't show it as a line item on the invoice if they want to. It's just that it would have to be shown as an estimate and "Estimated tax on our profits" doesn't look nice to customers. So they hide it and just raise prices.

 

[paflyer]

No reason they can't show it as a line item on the invoice if they want to. It's just that it would have to be shown as an estimate and "Estimated tax on our profits" doesn't look nice to customers. So they hide it and just raise prices.

I don't know for certain but I'll bet certain military contractors list this specifically (in a cost-plus arrangement.)

 

[denverpilot]

I don't know for certain but I'll bet certain military contractors list this specifically (in a cost-plus arrangement.)

They do. Those contracts make them special snowflakes and should never be allowed. They also pad the hell out of their costs.

In general the discussion is about private small business. Government contracts are a whole different and usually quite lucrative favoritism game.

Some of the wealthiest folks I know have small businesses that are a niche market to some never-ending government contract. One made tunable spectrum analyzers for the private sector which was an okay business until the three letter agencies realized the thing made a great RF spy device. They closed private sales down within a year and make six times what they made before selling spy boxes to government. Good work if you can stumble into it.

And I've already mentioned how well a former employer of mine did with selling already out of date crap to the military and FAA because they wouldn't buy the current model. No problem, end of life the thing, price just tripled or more, because you government idiots are the only ones who want the old ones built. Fork over the cash and we will keep building them.

We would have happily sold them current product line stuff cheaper than even the best private deals, because of the bulk they were buying in (economy of scale) but they wanted to rip off the taxpayer and buy the ten year out of date garbage because they couldn't approve the new stuff inside their silly bureaucracies.

So, government contracts are lined with so much stupidity it's difficult to make comparisons to the mom and pop on the street corner selling to the genpop.

 

[Zeldman]

Unless the business operator is stupid or planning on bankruptcy.

Bingo..!!!

Several years ago I was managing a small pizza restaurant. One day the owner came in and said we are changing the way bills get paid. Basically he took the bill paying away from me and took it over himself. 90 days later I start getting calls on why bills are not getting paid. I ask the owner what is going on. He tells me not to worry, he is taking care of it. Stupidly I believed him.

30 days later the food delivery says no more food until we get paid.

30 days later I come to work to find the building pad locked and a sign says Out Of Business.

Turns out the owner pocketed the money and took off. Since it was a franchise I called the parent company to let them know what happened. We reopened the next day, but as the story unfolded I found out that the previous owner had not been paying any bills, and had taken off with all the money, even money owed for taxes. He screwed over all of the employees, which 99% of them were college students. He put on a great act.

 

[Gerhardt]

By and large, if you're buying a franchise then you're buying yourself a job with a lot of financial risks. I've looked at a few over the years. The big names tend to be prohibitive to the average joe, requiring substantial cash in the bank AFTER buying into them. By substantial, I'm not talking tens of thousands, but hundreds of thousands. And that's per location. To ensure that you don't go belly up and tarnish their name.

There were only two that I seriously considered. One, a friend of mine ended up buying and a year later I learned how fortunate I was that it wasn't me. He was inundated with costs never anticipated and the projected volume used in the sales presentations didn't materialize.

The other was Lawn Doctor, and this was when the market was in its infancy and there were very few lawn treatment companies. It required little investment, and seemed to be a no-brainer. Costs were reasonable and I didn't see a down side. But I was thorough and while still thinking "what is it I'm not seeing?" someone else bought the franchise rights. They seemed to do well. I saw their trucks frequently for a couple of years. And then I didn't. I have no idea what happened but in the back of my mind I'm still thinking it was the franchisee who didn't make it work because the up-front costs were so small and the margins are admirable.

I tend to think it's the kind of thing that would be tough to make work, and if there's one that would, well, someone else has already snapped it up. I wish I was more of an optimist.

 

[paflyer]

The other was Lawn Doctor, and this was when the market was in its infancy and there were very few lawn treatment companies. It required little investment, and seemed to be a no-brainer. Costs were reasonable and I didn't see a down side. But I was thorough and while still thinking "what is it I'm not seeing?" someone else bought the franchise rights. They seemed to do well. I saw their trucks frequently for a couple of years. And then I didn't. I have no idea what happened but in the back of my mind I'm still thinking it was the franchisee who didn't make it work because the up-front costs were so small and the margins are admirable.

Uh, "foreign" competition.

 

[Shawn]

So he embezzled money that he had been collecting and holding on behalf of the State.

Negative...it is the business that is responsible for paying the taxes. The business MAY be reimbursed by the customer, but is is the business's funds to pay with, NOT the State's. The State is DUE the money, but it is not theirs when paid by the customer. Those that are arguing that the tax it is some separate asset of the state held in escrow by the business are are just straight up delusional. Here is a wording from CA BOE:

Who is responsible for paying sales tax to the BOE?

As a seller, you are responsible for paying the correct amount of sales tax to us. If you do not pay the correct amount, the additional tax plus applicable penalty and interest will be charged.

Can I collect sales tax from my customer?

Yes. Although you are required to pay and report sales tax to us, you may be reimbursed by your customer for the amount of tax you owe on a sale. For example, if you are required to pay $1.75 in sales tax on a sale, you may pass that cost on to your customer, provided it is agreed to as part of the sale. It is presumed that the customer agrees to pay the addition of an amount for tax if:

• You list a separate amount for sales tax reimbursement on your receipts or invoices;
  
  
• You post a sign on your premises stating that sales tax reimbursement will be added to all prices of taxable
  
  merchandise, or make a similar statement on price tags, advertising material, and other printed material
  
  directed to the purchaser; or
  
  
• The sales agreement specifically calls for the addition of sales tax reimbursement.

 

[ragedracer1977]

You're splitting hairs. The owner in the story collected the taxes due, and stole them.

 

[denverpilot]

You're splitting hairs. The owner in the story collected the taxes due, and stole them.

And the folks here claiming that "collecting" taxes vs "being levied taxes on profits" *isn't* splitting hairs?? LOL.

Same person paying them... the customer.

Taxes is taxes is taxes. Whatever you're paying in them NET is your tax rate. Hundreds and hundreds of different taxes, and the government still needs loans of 10x the amount collected to operate.

Supposedly.

The game is that when they go on TV to ask for more, people naturally think of business where a balanced budget is required. Of course our government has no such restriction whatsoever.

There's only one real mandate of government. Spend more than you bring in. Nobody appears to care that it makes the entire taxation system simply a way to punish some behaviors and reward others. The money collected isn't actually paying for the stuff. The total due on the loans is rising, not being paid off.

Politicians don't care. They'll be out of office and the next can kicker will get to deal with it.

 

[Cap'n Jack]

If you think that's bad, you should see what our McChain competitors have started to do. They now list their price as (for example) "$139.95 per night, plus tax" -- but in the small print it says "price does not include parking or resort fees".

Those fees are over $80/day! What a scam. lol

But Expedia is apparently allowing it, and it makes the McChains look more competitive.

"Started to do"? Hotels have been doing that forever, chains and independent operators, since they know how to game on-line search. I only have been tagged with a parking fee if I bring a car. I agree the resort fee is a way to low-ball price on on-line search, but it is also a way to avoid those some of those taxes you dislike so much.

I do note you didn't answer my question about whether your web page would show a different rate if you didn't have the "occupancy tax" and those other taxes levied on your rooms.

 

[Everskyward]

And the folks here claiming that "collecting" taxes vs "being levied taxes on profits" *isn't* splitting hairs?? LOL.

Merchants are required to collect sales tax and send it in regardless of whether or not they are making a profit. In the old days (the only time I was involved in collecting sales tax), you kept track of what the customer paid in sales tax, and wrote a check to the state periodically. I'm sure it's automated now. The money might have been in the company's checking account for a few days, but it never really belonged to the company.

 

[eetrojan]

If you're charging, say, $100/night, the tax is $13. You're only collecting the tax, putting in in a bank account, and sending it off to the Man periodically. It's not ever "your" money and doesn't show up in your P&L.

Just my opinion...

In a given area, the local hotels charge as much as they can relative to the out-of-area or non-hotel options (Airbnb, VRBO, day trip instead of an overnight, etc.).

Jay has lots of mandatory expenses that aren’t listed on Jay’s bill, but are passed on to the customer in his room rates. Water, power, laundry, consumables, etc.

A “hotel tax” is just another mandatory expense, the only difference being that it’s an arbitrary number imposed by the government and it’s separately broken out on the bill to allow Jay to advertise a lower rate, appease the customer, and make it seem like it’s just a pass-through with no “effect” on Jay.

While it doesn’t affect Jay’s ability to compete with the hotel across the street since they must both pay the same tax, it certainly prevents Jay and his competitor across the street from raising their room rates by the same amount as the tax.

There’s no meaningful difference between a “tax passed-through to the customer” and “a mandatory expense on Jay that he passes through to the customer.”

The only silver lining is the tax is equally imposed on SOME of Jay’s competition.

 

[eetrojan]

Merchants are required to collect sales tax ...The money might have been in the company's checking account for a few days, but it never really belonged to the company.

That certainly helps ensure payment of the tax and maintenance of the fiction.

 

[denverpilot]

Merchants are required to collect sales tax and send it in regardless of whether or not they are making a profit. In the old days (the only time I was involved in collecting sales tax), you kept track of what the customer paid in sales tax, and wrote a check to the state periodically. I'm sure it's automated now. The money might have been in the company's checking account for a few days, but it never really belonged to the company.

Sure, but the complaint was that somehow this is materially different than the business paying other taxes. It's not in the end, the customer pays for either one, and the government is taking money off of the hard work of the business owner either way.

There wouldn't be any sales tax to levy if there weren't a sale, and there wouldn't be any taxes on revenue to levy if there wasn't any revenue.

It's just simple theft wrapped in "somebody decades ago supposedly voted for it", either way.

 

[Jay Honeck]

Just my opinion...

In a given area, the local hotels charge as much as they can relative to the out-of-area or non-hotel options (Airbnb, VRBO, day trip instead of an overnight, etc.).

Jay has lots of mandatory expenses that aren’t listed on Jay’s bill, but are passed on to the customer in his room rates. Water, power, laundry, consumables, etc.

A “hotel tax” is just another mandatory expense, the only difference being that it’s an arbitrary number imposed by the government and it’s separately broken out on the bill to allow Jay to advertise a lower rate, appease the customer, and make it seem like it’s just a pass-through with no “effect” on Jay.

While it doesn’t affect Jay’s ability to compete with the hotel across the street since they must both pay the same tax, it certainly prevents Jay and his competitor across the street from raising their room rates by the same amount as the tax.

There’s no meaningful difference between a “tax passed-through to the customer” and “a mandatory expense on Jay that he passes through to the customer.”

The only silver lining is the tax is equally imposed on SOME of Jay’s competition.

Thank you. I was hoping someone would point out the obvious connection between this usurious tax and our lost income due to it being imposed.

Prices are always set at the maximum the market will bear at any given time. Being on a seasonal vacation destination island, I literally need a graph to tell you our room rates on any given day. The same room that is $69/night in November is $179 tonight, and these prices are set very carefully based on many historical factors. They are also highly fluid, based on many factors, including (among other things) weather.

All with a hefty 13% tax added on. If you don't think consumers are price sensitive to the cost INCLUDING THAT TAX, I've got some real estate to sell you.

Consumers don't care about the breakdown of the bill -- they react to the total number, and make their buying decisions based on the whole. To illustrate, there is still one tax-free type of hotel stay known as "long-term". Each state specifies what this means, but it is usually a stay of 30 days or longer. Beyond that, the state stops taking the 13%.**

Each winter, we fill up with snowbirds (AKA: "Winter Texans" who pay a deeply discounted rate. The rooms that are $200/night (plus tax) during the season will rent for as little as $800/month in the winter -- tax free.

Last year we tried to raise those long-term prices for the first time since we opened in 2010. We raised them just $50 per month...

...and sat empty. The Winter Texans are the perfect example of the price sensitive consumer, being on fixed incomes. A price increase of just over $1 per day caused them to look elsewhere.

We quickly dropped the price back to $800 -- and filled back up. It was a remarkable illustration of the immutable law of supply and demand, and price elasticity.

People who say "oh, that tax is on all of your competitors, so it has no impact on your bottom line" are inadvertently highlighting their lack of real world experience in business. Without that tax, the price would be EXACTLY the same -- the maximum the market will bear -- but we would get to keep it as regular income, and would therefore be able to use it for productive things -- like employee health insurance and benefits.

And airplanes.

** Hotel tax is 13% in Port Aransas. It was 12% in Iowa City. It is a whopping 17% in San Antonio.

 

[Clark1961]

So tell us again about how these businesses exist in a vacuum and no infrastructure is required for their existence and they receive no benefit from government action. This is the same old myopic argument against taxes that folks have made for centuries. Render unto Caesar and all that.

 

[paflyer]

So tell us again about how these businesses exist in a vacuum and no infrastructure is required for their existence and they receive no benefit from government action. This is the same old myopic argument against taxes that folks have made for centuries. Render unto Caesar and all that.

You didn't build that.

 

[Clark1961]

You didn't build that.

I didn't build what?

 

[eetrojan]

So tell us again about how these businesses exist in a vacuum and no infrastructure is required for their existence and they receive no benefit from government action. This is the same old myopic argument against taxes that folks have made for centuries. Render unto Caesar and all that.

I'm too dimwitted to understand what you're saying. Can you restate it for me?

 

[Clark1961]

I'm too dimwitted to understand what you're saying. Can you restate it for me?

No I can't compensate for your lack of ability to understand the simple concept that nothing exists on it's own in commerce.

 

[Goofy]

So you all so incredibly brilliant on the benefits of high taxes, list me the benefits accruing to lodging from a special tax of more than double sales tax. List them and their respective benefits.

 

[Clark1961]

So you all so incredibly brilliant on the benefits of high taxes, list me the benefits accruing to lodging from a special tax of more than double sales tax. List them and their respective benefits.

Better yet let's set up Jay in a motel in Susank, KS. The place has no bars, no restaurants, no charter fishing fleet, no airport, no highways, no medical facilities, no police, no maintained and patrolled beach, nothing to attract tourists, in short no reason and no way for people to go there. Let's see how he does with his business.

 

[Everskyward]

There wouldn't be any sales tax to levy if there weren't a sale, and there wouldn't be any taxes on revenue to levy if there wasn't any revenue.

If there's not a sale, there's no sales tax, but corporate taxes tax profits, not revenue. If expenses are more than revenue, there is no profit to tax. If Jay sells $1 million worth of hotel stays, his customers will have paid sales tax on that. But if he has $1 million in expenses, he isn't going to be paying corporate tax.

When you go to the store and buy a widget for $1 plus 4 cents sales tax, in your mind, do you figure you are paying the tax or is the merchant paying the tax?