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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For any of you that are still even considering Liberty tax as a possibility, why don't you do a little searching on justia.com which is a search site that lists legal cases that have been initiated by Liberty Tax. Search by typing in JTH Tax on the search screen and a whole list of defendants (ex franchisees) are listed. Ask any one of them hoe they would rate their experiences with Liberty!
I thought it interesting that this was a very large list that seems to keep the Eastern District Court of Norfolk, VA fully employed! Coincidence?...
The Liberty comments about losing all your money are accurate and not just disgruntled people who didn't know what they were doing. I was sucked into buying franchisees and came out losing more than 200k after 3 years. Due to franchise laws Liberty can't tell you before you buy how successful their franchisees are, because if they could you would never buy. The success stories at the pre-training sales pitches are corporate owned stores and maybe 1% of the population of franchisees (a dog and pony show). The other 99% will lose their money, have their franchise taken back, maybe get sued, and then Liberty will sell the franchise to someone else all over again.
run away wrote: ...Due to franchise laws Liberty can’t tell you before you buy how successful their franchisees are, because if they could you would never buy.
They may have told you that, RU, but it's not true that laws prohibit them from disclosing sales and profit numbers. Franchisors often state that they are prohibited, but actually they can provide financial performance data to prospects as long as they disclose it in Item 19 of the Franchise Disclosure Document. They must, however, provide the basis for their numbers.
Most franchisors, for various reasons, do not provide financial performance info in their FDD. One would assume that if it furthered the sale, they'd include it.
Ha! Ha! Run Away told the truth! I read the other day where Mr. Franchise says that 90% of franchisors DO NOT DISCLOSE "earnings claims" --- and I say even "earnings claims" aren't actually true disclosure of the unit financial performance of the systems because they may be averages that can be skewed.
What are the various reasons franchisors don't disclose earnings claims, Sean? l. Because they don't have to, under the FTC Franchise Rule or the State FDD, and this protects them from lawsuits from franchisees who don't thrive and can't then prove they were fraudulently induced to contract by misrepresentations or omissions, etc. in the forming of the contract. 2. Because if the disclosure reveals low or no profitability of units, this would kill the sale of the franchise. 3. Because even if the earnings claims were currently good, they might not remain good, and then it would sure look like "fraud" if the franchisor stopped making earnings claims to hide from new buyers the fact that the earnings were declining.
The original lie of the FTC Rule lives on --- i.e. that the purpose of the FTC Rule was to mandate that "essential" information be disclosed by franchisors that would enable prospective buyers of franchises to assess the risk of the investment in the franchise and compare it with other investments. The real purpose of the FTC Rule, as indicated by experts and attorneys, is to protect the franchisors from fraud and to deny a "private right of action" for franchisees even when there is a violation of the FTC Rule.
http:..thegreatfranchisingrobbery.blogspot.com
Carol - see you next Tuesday.
John S.
Carol,
Is there a way to contact you?
Yes! John! You can E-mail Admin at unhappyFranchisee[at]gmail.com and tell him that you have my permission to access my Email address.
I don't know how I could help you but I do feel that you are honestly trying to help the Liberty Tax franchisees who are failing and don't know what to do when Liberty Tax demands a "failure" fee that is obscurely defined in the terms contained in the contract the franchisee has signed in good faith. The good faith franchisees don't understand that the franchisor has premeditated their failure while at the same time they have not disclosed the odds of failure. Too bad! So sad! ---So many have been had!
Here is the problem as I see it. Some Liberty franchisees make money and are happy with their business. Some fail for what ever reason, and they blame the company. I've never heard of one blaming themselves for their failure.
Now, Liberty does have a habit of treating its franchisees as if they are morons. That is frastrating to franchisees who are not morons. The company oversteps its authority under the franchise agreements in myriad ways. They litigate way too often, having sued so many of their franchisees and former franchisees. The list of failed franchisees is enormous. I don't believe they intentionally lie, but one person claiming to speak for the corporate office will say one thing and then another person will not abide by that commitment leaving franchisees always wondering what they can depend on. They do many things that stupidly damage their relationships. However, as I said, some folks do well. If that was not the case then the company would not continue to grow.
The best advice for prospective purchasers of a franchise is to compare yourself honestly with those who succeed and those who fail. Are you more like one or the other? Personally, I would not purchase a Liberty franchise again because I know the tax industry now. If I move to another area I am perfectly capable of building a local mom and pop operation that would likely do better financially. If you don't know anything about a business then you need to buy someone else's system. Be prepared to be treated like you are stupid, and be prepared to act as if you are if you wish to be in the company's good graces. Liberty doesn't pay its corporate employees very well so they also don't get the best and the brightest. The people who are highly compensated are the ones to watch out for, though.
By the way, I believe it is time for Liberty franchisees to consider forming a franchisee association to represent their interests similar to what Jackson Hewitt franchisees did. Right now all franchisees are at the mercy of the whims of the corporate office. They have no power because they are not organized, and the company will always place its own interests above that of franchisees.
Have to tell you, when there is a posting that says "the list of failed franchisees is enormous" it says alot. Obviously there will always be franchisees that fail due to their own workings, but when failure is more the norm than the exception, there is something wrong. I have run successfully a small business in the past, and followed the liberty system more so than a lot of other franchisees who I knew during the past few years. Part of the flaws are you purchase a franchise to rely up systems that work, an organizational structure you can rely upon, and a brand name recognition that will bring people in. Liberty advertises this to their potential franchisees, but in most cases does not deliver. I firmly believe after being involved that the successful franchisees are either lucky, or hand picked to succeed by the corporate office as they get better development assistance than others. The area developers, who are one of the keys to the store's success, are in it to flip territories and not for the franchisees success.