Connors & Mack Hamburgers, Inc v. Department of Treasury

The petitioner in this case is appealing from the affirmance by the Tax Tribunal of a deficiency assessment by the Department of Treasury. Petitioner was a franchisee of McDonald’s Systems, Inc. As such a franchisee it was required to pay to McDonald’s 11-1/2% of its gross income. According to the agreement of the parties, 3% was a service fee, the balance rent for the business building, which was owned by McDonald’s.

In the preparation of its single business tax returns petitioner deducted the 3% service fee as a business expense and McDonald’s included it as business income and paid the…