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Buffett Rule Would Harm Small Business Owners in Franchising

For immediate release
Alisa Harrison, 202-628-8000
Matthew Haller, 202-662-0770

WASHINGTON, April 10-The International Franchise Association said franchise business owners could be significantly challenged to grow and create new jobs as a result of the "Buffett Rule," a tax increase on individuals and small business owners with more than $1 million in revenue proposed by President Obama on Tuesday. The Senate is expected to hold a vote on the Buffett rule on April 16.

"Taxing job creators will seriously impede the ability of franchise businesses to expand their operations and create new jobs, particularly multi-unit franchise operators and the majority of franchise businesses who file their business income on their personal tax return," said IFA President & CEO Steve Caldeira. "What franchise business owners need is comprehensive tax reform that lowers the overall rate for both corporations and individuals and eliminates the complexities of existing credits and deductions."

According to an Oct. 2011 survey by IFA, more than 80 percent of franchise business owners are pass-through entities such as S corporations, LLCs, and partnerships and would be significantly impacted by the proposed tax increases. A permanent 5.6 percent income tax increase on households earning more than $1 million annually, as proposed by President Obama and Senate Majority Leader Harry Reid (D-Nev.), would negatively impact 72 percent of franchisors and 43 percent of franchisees, with 28 percent and 17 percent expecting the impact to be significantly negative, respectively.

Asked about the possibility of current tax rates expiring and the income tax for households earning more than $250,000 per year increasing by 3.5 percent at the end of 2012, 88 percent of franchisors and 73 percent of franchisees say this will negatively impact their business. More than 40 percent and 25 percent of them say the impact will be significantly negative, respectively.

The survey results show franchise businesses are willing to trade tax deductions for a lower rate. 81 percent of franchisors and 70 percent of franchisees would be willing to trade tax deductions for a lower corporate tax rate.

"IFA looks forward to educating members of the House Ways & Means Committee, Senate Finance Committee and others involved in crafting comprehensive tax reform about the deductions and credits most important to the franchise community," said IFA Senior Vice President of Government Relations & Public Policy Judith Thorman.

The survey, conducted in Oct. 2011, included 336 responses from franchisors and single and multi-unit franchisees nationwide across the 10 major business lines represented within franchising, including quick and full service restaurants, lodging, business services, residential and commercial services, personal services, automotive, real estate and retail products/services.

About the International Franchise Association
The International Franchise Association is the world's oldest and largest organization representing franchising worldwide. Celebrating over 50 years of excellence, education and advocacy, IFA works through its government relations and public policy, media relations and educational programs to protect, enhance and promote franchising. Through its media awareness campaign highlighting the theme, Franchising: Building Local Businesses, One Opportunity at a Time, IFA promotes the economic impact of the more than 825,000 franchise establishments, which support nearly 18 million jobs and $2.1 trillion of economic output for the U.S. economy. IFA members include franchise companies in over 300 different business format categories, individual franchisees and companies that support the industry in marketing, law and business development.