Franchisees: How Well Do You Know Your State's Tax Code?

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When is a pizza not taxed like a pizza? When it's a take-and-bake pie, usually.

It may sound like a riddle, but for take-and-bake pizza franchisees at chains such as Papa Murphy's, whether menu items are defined as restaurant offerings or a grocery purchases can make a huge difference.

In most states, where take-and-bake pizzas are deemed groceries, the lack of sales tax saves customers a few dollars. And, since customers using food stamps can only spend them on food that isn't charged sales tax, Papa Murphy's is one of the few pizza chains where food stamps can be spent.

However, in some states, the tax benefits of take-and-bake pizza may be about to shrink. NPR reports on the blurred lines between prepared and unprepared, or taxable and non-taxable, and the resulting intervention from tax boards. The Streamlined Sales Governing Tax Board, which deals with sales tax code for 24 states, is set to offer its updated recommendations for take-and-bake pizza chains later this week.  

Related: Take-and-Bake Pizza Chain Papa Murphy's Files for $70 Million IPO

The Tax Board's rehash of the policy was prompted by the confusion of a Papa Murphy's franchisee from Wisconsin, NPR reports. The franchisee had been unable to get a clear answer on if his pizzas were taxable according to state tax codes.

If the Tax Board decides to deem Papa Murphy's taxable, franchisees in almost half of the states in the U.S. could be significantly disadvantaged.

Papa Murphy's raised $64.1 million in its IPO earlier in May. The chain has a reputation as a franchisee favorite, due to the simplified business model of take-and-bake pizza, as well as its low prices in non-taxable in states.

More than 20 franchisees recently filed an unrelated lawsuit against the chain, accusing Papa Murphy's of failing to disclose accurate information about financial performance in Southern and Southeastern states. 

Take-and-bake franchisees, remember – what works in Washington may not fly in Wisconsin. Be sure to investigate your state's tax code before you invest in a franchise. 

Related: Franchisees Sue Papa Murphy's as Pizza Chain Prepares for IPO

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