UnhappyFranchisee.com asked: Are LIBERTY TAX SERVICE Franchise Owners Happy? If you’re familiar
Entrepreneur magazine has ranked the Liberty Tax Service franchise #3 behind McDonald’s & Subway. However, some commenters who claimed to be former Liberty Tax franchisees left stern warnings on the Franchise-chat forum.
This post was originally published
BostonTax wrote:
I’m a former Liberty Tax Franchisee
I hope you are ready for a little enlightenment! I held a successful Liberty Tax Franchise for 5 years until I decided to let the franchise agreement lapse. I did this for a few reasons:
1. The royalty fees were outrageous! 14% went to normal royalty while and ADDITIONAL 5% went for so called advertising royalties. The ad royalties were supposed to be put back into your local market to build the brand name. This was never done! All advertising in addition to the ad royalty I had to pay for because it did not fit into Liberty’s concept of advertising. I don’t know exactly what the concept was because our AD could not give an answer and the approved methods changed by the week.
2. Corporate was totally unresponsive to the needs of the franchisees. The AD system is designed to recruit anyone who can write a check for 100K. No other skills or ability required.
3. The minute you are behind in a royalty payment, they send you a notice to cure. After that, if you don’tpay, they try to terminate your franchise agreement.
4. Upon termination, Liberty enforces through legal proceeding a 2 year, 25 mile radis non compete clause that is in the franchise agreement. This is enforceable in the Eastern Division of the Federal District court, where, at least 2 Liberty friendly judges preside.
5. Liberty does not recognize chargebacks for bad debts as an adjustment for your royalty fees. All royalties are based on your gross, not your net collectable. This was an ongoing issue with them and the accounting department did not have the ability or the inclination to resolve!
My best advice is do not go with these guys, they are bad news. If you like to have people collect royalties and provide no support, then this is the franchise for you! It is very expensive to get into, the initial fee is around $32K just to buy the territory plus those pesky royalties. You can’t make money on this concept.Most of the surviving franchisees I’ve talked to in the last 2 years have experienced great difficulty not only in making a profit, but in the corporate support or lack thereof.Remember, 19% of your gross is getting kicked back to Liberty, which is excessive by any standards. Please do yourself a favor and call former franchisees ,those that are currently getting sued (they are very likely to talk, as I found out), and current ones to try to get the straight poop.
Barbara Green wrote:
I too was a Liberty Tax Franchisee and I agree with everything you said.
The only reason for purchasing any franchise is because the business model is a proven marketing success as evidenced by the profitable franchisees. That is why you pay a license fee of $25,000. Being profitable is not in the cards for a Liberty Tax franchisee. Liberty Tax’s market/ business model is aimed at individuals who have very simple tax returns, i.e one W-2 and standard deduction which is why they were very successful in Norfolk, Va. That market is full of military people with one w-2.
Liberty will sell anyone a franchise at any location, in any georgraphic area, even if there is not a chance in hell of the franchisee being successful.
At one time, I too owned a Liberty Tax Franchise for one tax season. It was only one season because of the behavior of the Regional Manager who called me on January 15th demanding and screaming “Why had I not generated 200 tax returns and that maybe this business was not for me. I was stunned and confused since employers are given until January 31st. to give w-2’s to employees. Apparently, he thought that I was in Norfolk, Va. where that is possible.
It only goes downhill from there. The bottom line is I lost all of my investment in this businees (approx. $80,000) because I closed it rather than becoming a victim of this unethical company. NOthing would make me happier than to be a part of a class action lawsuit.
WHAT DO YOU THINK? DO YOU OR HAVE YOU OWNED A LIBERTY TAX SERVICE FRANCHISE? ARE LIBERTY TAX SERVICE FRANCHISEES HAPPY? WHY OR WHY NOT?
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^^^Bingo, Sara EA. Something that we can agree on. :)
Posting is well said. When Liberty goes under, he'd better be in jail.
Sara EA - time and changes will clean up the problems. I agree that the company should have shut down the stores with major problems.
Next tax season - first refund payments for returns with the earned income tax credit will be on February 15th and after. Thats a game changer. Means no money until mid-February. Also gives IRS time to send letters instead of refunds. No need for customers to pay high fees or try to file with a last check stub since most W2-s available by January 25th.
This is being kept quiet. Just think about how many tax offices will need a loan to cover expenses for an extra 2 months. Then think about the risk of waiting.
Angry customers if you don't tell them the refunds are'nt coming before then.
Game changer for more than just Liberty. Franchises not selling anyway. Lot of stores up for sell - more than just Liberty stores.
The Tax prep business is undergoing fundamental changes. With the sdvent of better and inexpensive software, fewer and fewer people are relying on paid preparers. Liberty is doomed because of this fact. Liberty is also doomed by their fraudulant practices. The business model that Liberty espouses is no longer valid. You would have to be nuts to invest in a company like this.
With all the negative publicity Liberty has experienced and rightly so, I see that people are getting a little wiser to the scam that they actually are. My experience in being instructed by Liberty management in how to conduct fraud is a good example. These are basically dishonest marketing people led by John Hewitt.
Best advice: Stay away!!!!!
Guest, I was startled by your statement that the delay in refundable credit refunds next filing season is "a game changer." (By the way, returns with Additional Child Tax Credit--another refundable credit-- will also be delayed.) I had not realized that so many of those returns were paid out of the refund. "Means no money until mid-February" and franchisees "will need a loan to cover expenses for an extra two months." Makes me wonder: How many Liberty clients actually pay for their return out of pocket and avoid the fees associated with refund anticipation checks? What kind of clientele does Liberty have?
Surely there must be Liberty offices that have clients who actually pay for the work. When I worked at Block years ago, most of the "first peak" clients opted to have our fees withheld from their refunds. After that, almost all clients, including mid-February clients, paid out of pocket. Where I am now we do very few EITC returns and do not have any bank products; clients have to pay us. Almost all do. Well, a very few ask if they can pay when their refunds arrive, and a bunch (non-EITC) prefer to get billed. Most pay up front, or send what they can when they can. We have one client who goes on extension every year, and when he brings his stuff in August also brings a check for $1800 for last year's return. He's always a year behind, but we always get paid.
Is it typical for Liberty stores to have only first-peak, no cash up front, clients? Boy, are they in trouble.
No. The delayed refunds effect approx. 30 million people. This effects HRBlock, Jackson Hewitt, Liberty, and many thousands of mom and pops. Bank products are used by thousands of tax businesses. There are middle income families that get the child tax credit and the earned income credit. Even if they pay out of pocket, they are counting on getting the refund soon to replace the cost of fees. I have at least a thousand clients that pay directly, but will have to plan for the delayed funding from the ones that don't. All large retail tax offices will be effected by the delay and so should small to mid sized tax offices.
It seems most franchises have gone through changes. The changes have been solely in favor of the franchisor. This is true in the insurance industry with captive agencies such as Allstate, Farmers and State Farm etc. They pay these people with a 1099 and treat their agents as employees. They seem to have gotten a hold of a LTS contract because most companies are screwing the people who make them and bring in their income.
The IRS really needs to look into all franchise companies due to the fact they pay as an independent contractor but have many requirements as an employer vs employee relationship. LTS is no different. They treat their "independent contractors" as an employee relationship, but offer no benefits and require absolute fidelity and threatens them constantly financially.
Agree that there are so many restrictions on Liberty franchisees that it does seem they should be treated as employees. FedEx has had a lot of trouble in this area.
Insurance industry is a poor example. Insurance agents are statutory employees, meaning they are treated as employees for FICA purposes but deduct their expenses on Schedule C.
Big difference between State Farm, Allstate, and Farmers. Allstate and Farmers agencies can be sold if the office owner can find a buyer. State Farm offices cant be sold. Agree agent is employee. Insurance offices that can be sold are worth more than tax offices. Wish I had discovered this 5 to 10 years ago. Would have combined tax and insurance back then. Its too late now.
Franchizee - I agree more regulation is needed. The next big 'oh no story' will be franchised sub shops - again. New ones are popping up in my area daily. Bunched together in middle to high income areas. All of the Quiznos' are gone.
Thanks to the 'unhappy franchisee' I have learned lots and saved lots of money.
SaraEA- Insurance agents who are owner/operators are all paid on a 1099 as independent contractors, not a W-2 with the Statutory box marked. The contracts are very specific for IRS purposes stating they are independent contractors.
Now the difference is, once an independent contractor agreement is approved by the lawyers and IRS, the companies gives a new agent a very liberal contract and they treat them strictly as an "independent contractor".
As the years go by just like LTS, the contracts start to morph into just as you stated as a Statutory Employee. However, the contract still states "independent contractor" and is paid as such. But the companies treat the "independent contractor" as a statutory employee. That is the same as LTS and the rest of the franchise system.
In order to keep your contracts you must jump through all these hoops and make sure you do everything they (any captive insurance agency or franchise system states) or they will pull your contracts.
With regards to Allstate and Farmers, their are very unhappy people in all the insurance systems. They are brow beaten to no end. It's true they can sell, however it is similar to LTS, they usually can never find a buyer that "qualifies" to the franchise system. When trying to sell my LTS store, it was a complete joke and it was set up to hand the whole territory back to them.
Does anyone have information about how the convention went? It was last week.