Is a 7-Eleven franchisee personally liable for sales tax on store sales even though the franchisor prepares, signs, and files the sales tax returns?

Plain-English summary

Rolston Woltin, a 7-Eleven franchisee operating a Queens store under a license-lease contract with Southland Corporation, asked who is personally liable for the store's sales tax -- the franchisee who runs day-to-day operations, or Southland, which controls the money and paperwork. Under the standard 7-Eleven franchise structure, the franchisee deposits daily receipts (net of purchases and operating expenses) into a "locked box" bank account that only Southland can draw from; Southland then creates and maintains all bookkeeping records, prepares monthly financials, issues payroll and other checks, and -- critically -- prepares, signs, and files all sales, payroll, and other business tax returns. The written franchise agreement itself said the franchisee "shall be solely responsible for and pay all other taxes, including, but not limited to, sales... taxes," and separately labeled the franchisee an "independent contractor," not Southland's agent.

The Department held that contract language alone doesn't settle who's liable under the Tax Law. Because the franchisee makes taxable retail sales, it's a "vendor" under § 1101(b)(8) and therefore a "person required to collect tax" under § 1131(1) -- personally liable under § 1133(a) for tax it collects or is required to collect, regardless of what the franchise contract says about internal responsibility. But the analysis didn't stop with the franchisee: sales tax collected at the register is trust-fund money held "for and on account of the state" under § 1132(a), and isn't the property of either the franchisee or Southland. Since the franchisee actually conveys those trust-fund dollars to Southland, and Southland then prepares, signs, and files the returns using that money, Southland ALSO becomes liable for the tax -- following the precedent set in Tilden Commercial Alliance. The result: both franchisee and franchisor end up jointly and severally liable, and the Department is not required to pursue Southland first before collecting from the franchisee (citing Matter of Kieth Pierpont).

What this means for you

Franchisees whose franchisor handles bookkeeping, payroll, or tax filings

Don't assume that handing sales-tax collection duties over to a franchisor's centralized bookkeeping system relieves you of personal liability. As the vendor making the actual retail sales, you remain personally on the hook for the tax under New York law, whatever your franchise agreement's internal allocation of responsibility says. The Department can pursue you directly without first exhausting remedies against the franchisor.

Franchisors that centrally manage a "locked box" account and file returns on franchisees' behalf

If you prepare, sign, and file sales tax returns using tax money your franchisees collected and remitted to you, you can become jointly and severally liable for that tax alongside the franchisee -- centralizing the bookkeeping doesn't insulate you either.

Common questions

Q: Does the franchise agreement's "franchisee is solely responsible for taxes" clause protect the franchisee from a Department collection action?
A: No. Contract language allocating tax responsibility between franchisee and franchisor doesn't bind the Department; New York's statutory vendor-liability rules control who the state can collect from, regardless of private agreements.

Q: If the franchisor files the tax returns, does that make the franchisor solely liable instead of the franchisee?
A: No -- both become liable. The franchisee remains liable as the vendor making the sales; the franchisor becomes liable too because it prepares, signs, and files the returns using the collected trust-fund tax money.

Q: Must the Department go after the franchisor first before collecting from the franchisee?
A: No. The Department is not required to collect from one jointly liable party before going after another.

Q: Can another franchisee in a different franchise system rely on this exact outcome?
A: No. This advisory opinion binds the Department only as to Rolston Woltin and the specific facts described; different contract terms or a different franchise structure could change the analysis.

Citations and references

Statutes and regulations:

• Tax Law § 1101(a) (definition of "person")
• Tax Law § 1101(b)(8) (definition of "vendor")
• Tax Law § 1131(1) (persons required to collect tax)
• Tax Law § 1132(a) (trust-fund status of collected tax)
• Tax Law § 1133(a) (personal liability for the tax)
• Tax Law § 1135(a)(1) (recordkeeping requirement)

Prior rulings and cases referenced:

• Matter of Tilden Commercial Alliance, Inc., Advisory Opinion, State Tax Commission, May 11, 1981, TSB-H-81(105)S
• Matter of Kieth Pierpont, Decision, State Tax Commission, October 21, 1983, TSB-H-83(199)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a96_65s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (65) S
Sales Tax
October 2, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.S950913D

On September 13, 1995, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Rolston Woltin, franchisee of a 7-Eleven Food Store, 149 01, 41 Ave.,
Queens, New York 11355.
The issue raised by Petitioner, Rolston Woltin, is whether Petitioner as a franchisee, or
Southland Corporation as franchisor of 7-Eleven stores, is personally liable for sales tax.
Petitioner presented the following facts in its Petition For Advisory Opinion as the basis for
this Advisory Opinion.
As a matter of course the 7-Eleven system provides that the franchisee operates the
franchised store operation under a license-lease contract with the Southland Corporation (hereinafter
"Southland"). The contract also provides for a bookkeeping service and an inventory collateral loan
program.
The franchisee is responsible for the "in store" operation. Southland is responsible for and
sets all policies, programs and the "7-Eleven" system of operations.
Generally, receipts from sales at the franchised store, after payment for any purchases or
operating expenses (as specified in the Store Franchise Agreement below) are deposited daily to a
"locked box" bank account from which bank account only Southland can draw money. Sales and
purchases are reported daily to Southland by the franchisee.
Southland creates and maintains all bookkeeping records; prepares monthly financial
statements; issues and signs all checks for purchases, payroll, franchisee draw, (payroll, sales and
other business) taxes; and, prepares, signs and files all sales, payroll and other business tax returns.
The following are relevant sections of Petitioner's Store Franchise Agreement.
9.

Franchisee's Draw. If FRANCHISEE is not in breach of this Agreement, 7ELEVEN shall: (i) weekly remit to FRANCHISEE the amount provided in Exhibit
D; (ii) within 10 business days (Monday through Friday) after the end of each
Accounting Period, inform FRANCHISEE of the available Monthly Draw and
Excess Investment Draw for the Accounting Period; and (iii) remit to
FRANCHISEE, upon FRANCHISEE'S written request, within 10 days after receipt
of such request, that amount of Monthly Draw or Excess Investment Draw, or both,
specified by the FRANCHISEE in such request, provided that the total amount so
requested by FRANCHISEE shall not exceed the greater of the available Monthly
Draw or Excess Investment Draw.

-2­
TSB-A-96 (65) S
Sales Tax
October 2, 1996
10.

Daily Deposits. Bookkeeping Records and Financial Summaries. 7- ELEVEN shall
have the right, under the terms hereof, to maintain, as part of its records and in
accordance with this Agreement, Bookkeeping Records on FRANCHISEE's
operation of the Store. FRANCHISEE may perform or obtain any additional
bookkeeping FRANCHISEE desires. Either party may inspect records pertaining to
the operation of the Store prepared or obtained by the other, where maintained, and
during normal business hours. FRANCHISEE shall: (i) properly date and timely
submit the Cash Report; (ii) deposit the Receipts for each Collection Period within
24 hours after the end of the Collection Period, in the Bank or night depository
designated by 7-ELEVEN, except cash expended by FRANCHISEE from that day's
Receipts for Purchases or Operating Expenses, which Purchases and/or Operating
Expenses shall be properly reported and accompanied by invoices reflecting such
payment; and (iii) deliver to 7-ELEVEN, at those times specified by 7-ELEVEN,
written verification by the Bank of such deposit, which verification must be dated as
of the business date next following the end of the Collection Period. If requested by
7-ELEVEN, FRANCHISEE shall deliver the Receipts (net of cash expenditures for
authorized Purchases and Operating Expenses) to 7-ELEVEN rather than depositing
such Receipts in the Bank. Amounts deposited by FRANCHISEE or delivered by
FRANCHISEE to 7-ELEVEN may be withdrawn from the Bank by or otherwise used
for the benefit of 7-ELEVEN at any time, without payment by 7-ELEVEN of interest
or other compensation to FRANCHISEE.
FRANCHISEE shall prepare and furnish to 7-ELEVEN, on forms and at times
acceptable to and as requested by 7-ELEVEN: (i) daily summaries of Purchases; (ii)
daily reports of Receipts; (iii) weekly time and wage authorizations for
FRANCHISEE's Store employees; (iv) all information requested by 7-ELEVEN
regarding the vendors from which FRANCHISEE makes purchases; and (v) all such
additional reports as 7-ELEVEN may require from time to time. FRANCHISEE also
shall deliver or furnish to 7-ELEVEN copies of bank drafts, vendor and other
receipts, invoices for Purchases, and receipts and bills for Operating Expenses, and
keep 7-ELEVEN currently advised in writing of all of FRANCHISEE's actual retail
selling prices (which FRANCHISEE shall solely select) and of all discounts,
allowances, and/or premiums received by FRANCHISEE. FRANCHISEE shall retain
and make available to 7-ELEVEN any records or other documents relating to the
operation of the Store that 7-ELEVEN requests that FRANCHISEE retain and/or
make available.
If FRANCHISEE is not in breach of this Agreement, 7-ELEVEN shall: (i) provide
Financial Summaries for FRANCHISEE for the Store prepared from the
Bookkeeping Records in the form of an income statement and a balance sheet for
each Accounting Period and for each calendar year, payroll checks for
FRANCHISEE's Store employees, draw checks, and merchandise reports; (ii) timely
pay on behalf of FRANCHISEE, upon approval and submission to 7-ELEVEN, bank

-3­
TSB-A-96 (65) S
Sales Tax
October 2, 1996
drafts and invoices for Purchases (as verified by vendor statements), bills for
Operating Expenses, and the payroll for FRANCHISEE'S Store employees; and (iii)
assist FRANCHISEE in the preparation and filing of business tax reports and returns
(except FRANCHISEE's income tax and related returns) to the extent the information
is available from the Bookkeeping Records.
FRANCHISEE authorizes 7-ELEVEN to collect discounts and allowances not
deducted from the face of invoices, and to charge FRANCHISEE for the market
value of any premiums FRANCHISEE receives based upon purchases.
11.

Open Account and Financing. As part of the Bookkeeping Records, 7-ELEVEN
shall establish and maintain an Open Account for FRANCHISEE. FRANCHISEE's
draw, Purchases, Operating Expenses, and amounts owed by FRANCHISEE to 7ELEVEN which relate directly or indirectly to operation of the Store, shall be
charged to the Open Account. All Receipts deposited or delivered to 7-ELEVEN
shall be credited to the Open Account, and any amounts due from 7-ELEVEN to
FRANCHISEE may be credited to the Open Account. The balance in the Open
Account shall be computed on a monthly basis and shall be reflected in the Financial
Summaries prepared by 7-ELEVEN for each Accounting Period. All Receipts shall
be credited to the Open Account for the Accounting Period during which the Cash
Report relating to those Receipts is dated (provided such Receipts are properly
deposited in the Bank or delivered to 7-ELEVEN as provided herein); and all
Purchases, Operating Expenses and amounts owed by FRANCHISEE to 7-ELEVEN
shall be charged to the Open Account for the Accounting Period during which
invoices, reports or information thereon is received by 7-ELEVEN (regardless of
when paid by 7-ELEVEN on behalf of FRANCHISEE).
If FRANCHISEE is not in breach of this Agreement, and so long as 7-ELEVEN has
a first lien on the Inventory and the Security Interest, 7-ELEVEN will finance (as a
loan) any unpaid balance in the Open Account. FRANCHISEE shall execute a
security agreement and financing statement(s) and such renewal or continuation
financing statements or other documents relating to the Security Interest as are
requested by and acceptable to 7-ELEVEN. If, at any time, in 7-ELEVEN's sole
opinion, there has been a Material Breach by FRANCHISEE or 7-ELEVEN believes
its Security Interest is threatened, 7-ELEVEN may discontinue the financing,
described above, and the unpaid balance in the Open Account shall be immediately
due and payable. FRANCHISEE may obtain financing other than from 7-ELEVEN.
The unpaid balance in the Open Account at the beginning of each Accounting Period
(the amount financed by 7-ELEVEN) shall bear interest for that Accounting Period
at the rate specified in Exhibit D. A credit balance reflected in the Open Account at
the end of an Accounting Period shall bear interest for the number of days in the

-4­
TSB-A-96 (65) S
Sales Tax
October 2, 1996
current Accounting Period, at the rate specified in Exhibit D, which interest will be
credited to the Open Account; provided, however, 7-ELEVEN may, at its option,
limit the credit balance amount upon which 7-ELEVEN will pay interest upon notice
to FRANCHISEE.
19.

Taxes. 7-ELEVEN shall pay all real and personal property taxes on the Store and
Equipment (specified in Exhibits A and B). FRANCHISEE shall be solely
responsible for and pay all other taxes, including, but not limited to, sales, inventory,
payroll, business, and income taxes.

21.

Independent Contractor. FRANCHISEE shall be an independent contractor and shall
control the manner and means of the operation of the Store and exercise complete
control over and responsibility for all labor relations and the conduct of
FRANCHISEE's agents and employees, including, but not limited to, the day-to-day
operations of the Store and all Store employees. FRANCHISEE and FRANCHISEE's
agents and employees shall not (i) be considered or held out to be agents or
employees of 7-ELEVEN or (ii) negotiate or enter any agreement or incur any
liability in the name or on behalf of, or that purports to bind, 7-ELEVEN. No actions
taken by FRANCHISEE or FRANCHISEE's agents or employees shall be deemed
to be actions obligating 7-ELEVEN. FRANCHISEE acknowledges that nothing
herein shall create a fiduciary or similar relationship with 7-ELEVEN.

Applicable Law
Section ll01(a) of the Tax Law provides:
When used in this article the term "person" includes an individual, partnership,
limited liability company, society, association, joint stock company, corporation,
estate, receiver, trustee, assignee, referee, and any other person acting in a fiduciary
or representative capacity, whether appointed by a court or otherwise, and any
combination of the foregoing.
Section l101(b)(8) of the Tax Law provides in part:
Vendor. (i) The term "vendor" includes: (A) A person making sales of tangible
personal property or services, the receipts which are taxed by this article;
Section 1131(1) of the Tax Law provides in part:
"Persons required to collect tax" or "person required to collect any tax imposed by
this article" shall include: every vendor of tangible personal property or services ....
Section 1132(a) of the Tax Law provides in part:
Every person required to collect the tax shall collect the tax from the customer when

-5­
TSB-A-96 (65) S
Sales Tax
October 2, 1996
collecting the price, amusement charge or rent to which it applies. . . The tax shall be
paid to the person required to collect it as trustee for and on account of the state.
Section 1133(a) of the Tax Law provides in part:
Liability for the tax. (a) Except as otherwise provided in section eleven hundred
thirty-seven, every person required to collect any tax imposed by this article shall be
personally liable for the tax imposed, collected or required to be collected under this
article.
...
Section 1135(a)(1) of the Tax Law provides in part:
Every person required to collect tax shall keep records of every sale or amusement
charge or occupancy and of all amounts paid, charged or due thereon and of the tax
payable thereon, in such form as the commissioner of taxation and finance may by
regulation require. . . .
OPINION
Petitioner, as the franchisee of Southland, licenses-leases a 7-Eleven store. Petitioner is a
vendor since it makes sales of tangible personal property or services, the receipts from which are
subject to tax. See section ll01(b)(8)(i)(A) of the Tax Law. As a vendor, Petitioner is a "person
required to collect any tax imposed by this article" under section 1131(1) of the Tax Law. Petitioner,
therefor, is personally liable for the sales tax that it collects or is required to collect on sales from the
store it operates.
Each day Petitioner is required to deposit all receipts, net of purchases and operating
expenses, in a "locked box" bank account from which only Southland can draw. Under the contract,
Petitioner, as franchisee is solely responsible for sales tax. However, Petitioner states that Southland
creates and maintains bookkeeping and financial records including filing sales tax returns. Sales and
compensating use taxes are paid to Petitioner as trustee for and on account of New York State and
are not the property of either Petitioner or Southland, notwithstanding any contrary provision of the
contract. Thus, Petitioner is liable for the collection and payment over of tax and the filing of returns.
If Petitioner conveys these trust tax monies to Southland and Southland prepares, signs and
files sales and use tax returns, Southland thereby also becomes liable for the taxes, whether or not
it is a vendor for purposes of article 28 of the Tax Law with respect to sales by Petitioner. (See,
Tilden Commercial Alliance. Inc., Adv Op St Tx Comm, May 11, 1981, TSB-H-81(105)S)
Consequently, because of the contractual relationship between Southland and Petitioner, and because
Southland prepares, signs and files returns which Petitioner is also required to file, each of them
becomes jointly and severally liable for the tax collected by Petitioner and deposited in the locked

-6­
TSB-A-96 (65) S
Sales Tax
October 2, 1996
box account administered by Southland. It should be noted that the Department of Taxation and
Finance is not required to collect sales and use tax due from another person liable for the tax before
it collects it from Petitioner. (See, Matter of Kieth Pierpont, Dec St Tax Comm, October 21, 1983,
TSB-H-83(199)S)

DATED: October 2, 1996

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.