Members of the Coalition of Franchisee Associations are listed on a display at the July 2012 CFA Day event in Washington DC.

Members of the Coalition of Franchisee Associations are listed on a display at the July 2012 CFA Day event in Washington, DC.

DDIFO Working to Leverage Collective Strength to Protect Franchise Owners

When this issue went to press, franchisees in New Jersey were looking at a possible 17 percent increase in the state’s minimum wage. In Florida, state regulators are auditing Dunkin’ Donuts franchisees to be sure they are complying with sales tax regulations. And in Illinois, close scrutiny was being given to the legal language governing whether a dozen donuts is considered a bulk sale or not. A business owner’s misinterpretation of the Illinois law could result in negative tax repercussions down the line.

While these regulations may seem specific to the individual states involved, they are singular in theme says New Hampshire franchisee John Motta. “Legislation, whether at the local, state or national level, is going to have a bigger and bigger impact on the small business owner,” he said.

With more than three decades in the Dunkin’ Donuts system, Motta knows first-hand all the responsibilities vying for owners’ attention: from hiring and scheduling, to overseeing product quality and customer satisfaction, to bookkeeping and taxes. Motta acknowledges that especially for the new business owner, it can feel like there aren’t enough hours in the day to keep stores running smoothly, let alone stay current on legislative issues at home and across the country.

And yet it’s crucial they be informed, Motta says, so they can have an active voice in the process. One of the reasons DDIFO took a leadership role in founding the Coalition of Franchisee Associations (CFA) in 2007 was because the organization provides a platform to organize and speak for franchisees at the national level. Based in Washington, DC, the CFA brings together some of the largest and most reputable independent franchisee associations to leverage the collective strength of franchise owners (see below “CFA Members”).

Motta, a member of CFA’s government relations subcommittee, says he makes it a point to stay current on issues by reading and attending workshops and forums. Like many businesspeople, he often has a more thorough understanding of the business impact of impending or newly passed regulations than the legislators responsible for their passage. An example of this just happened last July during the annual CFA Day Forum on Capitol Hill.

Motta met with a senator’s top aide to discuss health care regulations and laid out the figures as he understood them. The aide expressed surprise that the legislation affected small business owners to the extent Motta had outlined. At the time, Motta was visiting the Hill with a small group of CFA members, representing various franchise systems. Motta’s hope for this coming July’s CFA Day Forum is to have some two dozen or more DDFIO members in attendance as well.

“There is definitely strength in numbers.”

Motta says he has noted an increased emphasis on government relations from Dunkin’ Brands over the past few years. There will be cases, such as the use of Styrofoam cups, where the interests of Dunkin’ Brands aligns with the franchisees, but that will not always be the case. As such, the more the franchisees can work with one another to speak from their collective best interest, the better.

Motta acknowledges learning the ins and outs of operating a Dunkin’ Donuts restaurant can seem overwhelming for a new franchise owner. Navigating the political process is an even greater challenge. But, when franchisees speak with one voice—whether it’s on paper or at a meeting—there is room for a wide-range of experience.

“Newcomers can watch and learn, gain experience and see how it’s done,” Motta said.

A Different Classification

Franchisees in Florida are waiting for the dust to settle on potential changes regarding how Dunkin’ shops are classified and taxed. Until now, the state has classified a stand-alone Dunkin’ Donuts as a bakery rather than a restaurant; but, if the Dunkin’ is paired with a Baskin Robbins, it is already classified as a restaurant. According to franchisees interviewed by Independent Joe, the state is looking at a single type of classification which could result in, among other things, changes to how franchisees charge sales tax on bulk sales of donuts, muffins and bagels.

The Florida Department of Revenue (DOR) has initiated audits on several franchisees to determine whether they have been charging sales tax on bulk items.

According to the Florida DOR website, bakery products are exempt from tax when they are “sold for intended consumption off the premises,” but can be taxed when they are “sold in quantities of five or less [and] are assumed to be sold for consumption on the premises.”

But, by rewriting the rules, the state would require customers to pay sales tax on all bulk sales—even if the box is sealed with a sticker—indicating the items were not intended to be consumed on premises.

Florida franchisees have retained the accounting firm Ernst & Young to review DOR audits and get clarification on how the system will work going forward.

“It’s still early in the process,” said one Florida franchisee. “We hope to know soon how this is going to play out.”

Strength in Partnerships

How to tax a dozen donuts is playing out in a different way in Illinois.

At issue is the application of the state’s restaurant tax rate (about 10 percent) versus the bulk sales rate (about 2 percent). The restaurant tax rate applies to all goods purchased. It impacts Dunkin’ Donuts customers because they are charged the same tax rate on one donut as they are on a dozen, even though a dozen is technically a bulk sale. If that same customer purchased a dozen donuts in the grocery store, he would pay the lower bulk rate tax.

Franchisee Dennis Gramm is a two-store operator in greater Chicago and understands that value is an important driver in a very competitive QSR market. Chicago area franchisees identified an opportunity to create value for the consumer if donuts sold by the dozen are classified as bulk retail sales.

In other words, Dunkin’ Donuts restaurants would continue to charge and collect the same amount per dozen (or more) donuts, but because the state is applying a lower tax rate to the bulk sale, the guest can

pocket the savings. According to Gramm, as with any change in tax law, franchisees need to be educated to ensure they understand how the change applies to their business.

“DDIFO has to take a very active role,” Gramm said with regard to how the organization communicates information about this and other legislative and regulatory issues to its members. He stressed that DDIFO must act collaboratively to collectively represent the voice of the franchisees.

One way DDIFO is getting active, noted Asheesh Seth, vice chairman of DDIFO’s board, has been through reaching out to the Illinois Chamber of Commerce. Seth said a member of the Illinois Chamber was invited to address a group of local franchisees to discuss how the tax rate applies to all goods purchased in QSRs and other restaurants.

Andrew Proctor, the director of advocacy for government affairs at the Illinois Chamber says his organization recognizes that business owners–large and small–first have to be experts in their area of business, and may not have the background or understanding to decode the intricacies of a piece of legislation. One way the Chamber helps inform constituents, is by sending a weekly legislative bulletin focused on issues that can impact business owners.

Timing is Everything

Getting on the public radar can make a huge difference when it comes to impending legislation, according to Shub Hegde, who operates a number of Dunkin’ Donuts in Ocean County, New Jersey. As this issue was going to press, Hegde was awaiting a meeting date with Governor Chris Christie to discuss the impact that raising the state’s minimum wage would have on small business owners like himself.

On November 19, 2012, the New Jersey Senate Budget and Appropriations Committee released legislation that would increase the state’s minimum wage from $7.25 per hour to $8.50, and tie future increases to the Consumer Price Index. The bill, S-3, is now before the full Senate.

If enacted, it would establish the third-highest minimum wage rate in the country, behind only Washington State ($9.04) and Oregon ($8.80). The last increase in New Jersey’s minimum wage was in 2009, when the federal minimum wage was increased to $7.25 per hour.

Hegde acknowledges that raising the wage may be a political eventuality in New Jersey, but that there is still room to negotiate. “It’s an increase of 17 percent,” he said. “It’s an exorbitant number.” He and other business leaders are hoping any significant increases can be phased in over time, to cushion the blow and give small business owners the chance to run their own numbers.

The timing of the bill comes as a shock to storm battered New Jersey. Like other business owners along the Jersey Shore, Hegde has focused his attention on getting stores re-opened and assessing the impact to his bottom line. Adding 17 percent to his cost of doing business will be another shock.

Still, Hegde realizes he is not alone. “Right now it’s a New Jersey issue, but it’s going to spread around like wildfire.”

Dunkin’ Donuts franchise owner Rob Branca is CFA vice chairman and a member of its fair franchising and government relations committees. “The CFA member associations are amongst the strongest and best structured in franchising and have made ground breaking strides for their franchisees. There really is no other place that franchisees can learn firsthand about the details of these achievements from the other franchisee associations,” Branca said.

Current Members of the Coalition of Franchisee Associations

With the addition of the Long John’s Silver’s, Domino’s, 7-Eleven and Pharmacy Franchise Owners associations in 2012, the Coalition of Franchisee Associations (CFA) now represents more than 25,000 franchise owners, more than 66,000 locations and more than 1.2 million employees. Headquartered in Washington, DC, its members include:

• Asian American Hotel Owners Association

• Buffalo Wings National Franchisee Association

• Domino’s Franchisee Association

• Dunkin’ Donuts Independent Franchise Owners Association

• Edible Arrangements Independent Franchisees Association

• Independent Association of Massage Envy

• Independent Coalition of Franchise Owners

• Independent Hardee’s Franchisee Association

• Independent Association of Little Caesars Franchisees

• Long John Silver’s Franchisee Association

• Meineke Dealers Association

• North American Association of Subway Franchisees

• National Coalitions of Association of 7-Eleven Franchisees

• National Franchisee Association, Inc., An Association of Burger King Franchisees

• Pharmacy Franchisee & Owner Association, Inc.

• San Francisco Monterey Bays 7-Eleven Franchise Owners Association

• Service Station Franchisee Association