New Jersey Franchise Tax: Everything You Need to Know
The New Jersey franchise tax is imposed on corporations in the state for the right of operating under New Jersey law.3 min read
2. New Jersey's Franchise Practices Act
3. LLC Federal Taxes
New Jersey's Franchise Disclosure Document Registration
Unlike some states, New Jersey does not require that businesses register their franchise disclosure documents (FDD) with its state regulator; however, business owners must ensure that their franchises operate according to Federal Franchise Laws. This means that owners have to retain current FDD that they can present to any potential New Jersey franchisees prior to selling their franchises.
The New Jersey Franchise Practices Act was created to provide protection and rights to New Jersey franchisees after signing franchise agreements. This act forbids specific provisions and actions through the agreement that pertain to the relationships between franchisors and franchisee.
New Jersey's FDD is ruled by the FTC Franchise Rule. This rule demands that a franchisor provide a legal and current FDD to any potential franchisees within 14 days prior to signing an agreement or exchanging any money.
New Jersey's Franchise Practices Act
The New Jersey Franchise Practices Act was designed to oversee the interactions and relationships between franchisees and franchisors. Under this act, franchisors need to be aware of the additional obligations the act puts in place, and franchisees should be aware of the supplemental benefits it gives them.
Following are a few examples of these additional rights and obligations imposed under the New Jersey Franchise Practices Act:
- Franchisors are obligated to give franchisees a minimum of 60 days' notice and explanation prior to terminating, canceling, or denying renewal of a franchise.
- When a franchisee requests permission from the franchisor to sell or transfer the franchise, the franchisor has 60 days to either approve or deny this request and provide his or her reasoning. If the franchisor fails to reply within 60 days, the request is automatically approved.
- A franchisor cannot force a franchisee to sign a release form as a requirement to own a franchise.
Other regulations and rules in the New Jersey Franchise Practices Act focus on monitoring the relationship between the franchisor and franchisee as well as protecting the franchisee from any unreasonable interference by the franchisor concerning the operation of the franchise.
LLC Federal Taxes
All federal taxes are submitted to the Internal Revenue Service (IRS). In New Jersey, limited liability companies (LLCs) report their taxes to the IRS, but they do not pay their taxes. This is because an LLC is a flow-through entity, meaning the profits and losses of the business pass on to the owners. The owners then file and pay the LLC's taxes on their individual tax return. The IRS automatically taxes the LLC based on the number of owners it has.
If an LLC in New Jersey has only one owner, it is taxed as a disregarded entity:
- If the one owner is an individual, the LLC is considered a sole proprietorship.
- If the one owner is another business, the LLC is considered a section or branch of the parent business.
As mentioned previously, LLCs and sole proprietorships are taxed as flow-through entities, meaning their owners report and pay the taxes of the business on their individual tax returns or 1040 forms. Usually, any profits and losses of the business are reported on a Schedule C. Depending on the business, other schedules and forms may be required.
If an LLC in New Jersey has more than one owner, then it is taxed as though it is a partnership. As a partnership, an LLC must report and file its own tax return or Form 1065. It is also required to provide each owner with a K-1, detailing the percentage of the LLC's profits. The owners include the K-1 with their individual tax returns.
An LLC is elected as a sole proprietorship or partnership automatically by the IRS. When the LLC applies for an employer identification number (EIN), it lists the number of owners of the LLC. The IRS uses this information to determine which tax election to assign.
If desired, an owner can also request to be taxed as a corporation. There are two types of corporations with different taxation requirements:
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